Working Papers
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Selection and Serial Entrepreneurs (Job Market Paper)
This version: September 2009
This paper develops and tests a model that explains entry into serial entrepreneurship and the performance of serial entrepreneurs as a result of selection on innate ability. The model supposes that agents establish businesses with imperfect information about their entrepreneurial ability and the profitability of business ideas. Agents continually observe signals with which they update their beliefs, and this process eventually determines their next business choice. Selection on ability induces a positive correlation between entrepreneurial experience (measured by previous business earnings and founding experience) and serial business formation, as well as its subsequent performance. The predictions in the model are tested using panel data from the NLSY79. The analysis permits a distinction to be made between selection on innate ability and learning by doing.
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Employee Spinoffs and the Solipsistic Entrepreneur
with Peter Thompson
This version: June 2009
A team of managers engaged in production using technology x, is considering switching to technology y. The value of y is learned slowly over time, but constraints on the ability of individual managers to communicate their beliefs allow disagreements to emerge among team members. Managers who develop sufficiently strong disagreements with their colleagues choose to form new companies to implement their preferred strategy. Out of a symmetric model of disagreement, two distinct classes of spinoffs arise. A type 1 spinoff forms when an employee comes to believe it is worth switching to y but the firm does not. A type 2 spinoff arises when an employee sufficiently disagrees with the firm’s decision to switch strategy that he is willing to invest in order to continue with x. The comparative dynamics of the formation of type 1 and type 2 spinoffs are distinct, and yield some novel testable implications.
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Wealth Constraints and Self-Employment: Evidence from Birth Order
This version: March 2009
I revisit the question of whether entrepreneurs face liquidity constraints in business formation. The principle challenge is that wealth is correlated with unobserved ability, and adequate instruments are often difficult to identify. This paper uses the son’s birth order as an instrument for household wealth. The instrument would likely not be useful in Western data, but it is in many non-Western cultures where primogeniture remains important. I exploit the data available in the Korean Labor and Income Panel Study, and find evidence of liquidity constraints associated with self-employment in South Korea.
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Stars and Misfits: A Theory of Occupational Choice
with Thomas Astebro and Peter Thompson
This version: August 2008
In some datasets, the self-employed earn markedly less than wage earners, even though those at the top end of the distribution earn more than their wage-earning peers. This observation is explained by a model of entrepreneurial choice that blends Lazear’s [Journal of Labor Economics, vol. 23, pp. 649-680 (2005)] notion that entrepreneurs must be skilled in a variety of activities with the strong complementarity between skills central to Kremer’s [Quarterly Journal of Economics, vol. 108, pp. 551-575 (1993)] O-ring theory of production. We test some predictions of the model using three datasets, but with mixed results.
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Who Benefits from Firm Growth? An Analysis of Technology Effects on Job Turnover
This version: October 2007
Motivated by the previous empirical finding that white-collar workers had higher turnover rates than blue-collar workers during firm expansion, this paper further examines job turnover among workers with or without specific skills when firm growth is driven by technology upgrading. To induce the intuition, I first present a simple search-matching model, which predicts that when firm growth is driven by technological advance, workers whose skills are specific to the obsolete technology show a higher tendency to separate from their jobs. This hypothesis is tested with an individual-level data set constructed from the Panel Study of Income Dynamics. There I find supportive evidence that in the context of industry-wide technological change, being on an occupation requiring specific skills, such as computer specialists, engineers, or professional workers, increases the odds of job separation by nearly eight percent.
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The Growth Effects of Intrinsically Worthless Education
This version: December 2006
A positive relationship between individual earnings and education has been repeatedly justified by microeconomic theory and is also strongly supported by its empirical evidence. Although theoretical growth models have predicted even deeper links between education and growth, empirical work at the aggregate level hasn’t been able to provide strong evidence consistent with this theoretical prediction. Some studies have attributed the inconsistency between micro and macro evidence to the primary signaling function of education, which does little to increase individual’s productivity, and in turn is regarded as having no significant effects on growth. This paper develops a growth model taking individuals’ innate ability into account, and explores the possibility that even if education only serves as means to signal innate ability, it still can have positive effects on growth if it helps to distinguish the high-ability labor from the low-ability, so that the most able individuals can be allocated to the knowledge creation sector and consequently increase economic growth.
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