Fall 2008

ECO 6939

The Economics of Entrepreneurship

 and Young Firms

Peter Thompson

Thursdays, 9:30 - 12:15, GC 279A

In this course we will study the recent theoretical and empirical literature on entrepreneurship, firm formation, and the performance of young firms.  

This class meets once a week for a double session. The first half of each lecture will be devoted to discussing the previous weeks readings. In the second part, I will lecture on the next week's reading. 

The discussions will center around questions that might generate new research ideas (e.g. is the theory robust to alternative, plausible assumptions? how might one test the theory? can the empirical work be done better? would the empirical results hold in different samples?). Hence, you should be thinking about these questions while you are reading the papers. Following up on the questions will often entail you looking at additional papers that I have not assigned.

Grading is based on three assignments:

     1. Your active participation in discussion: 25%;

     2. A written research proposal, about 5,000 words: 35%;

     3. Oral presentation of your research proposal, about 30 minutes: 15%;

     4. A final exam, 25%.

Part A. Entrepreneurship and New Firm Formation

Week 1/2 - Lecture, August 28; Discussion, Sep 4.

Topic:  Introduction

Parker, Simon C. (2005): "The economics of entrepreneurship: What we know and what we don’t." Foundations and Trends in Entrepreneurship, 1(1):1-54.

Geroski, Paul A. (1995): “What do we know about entry?” International Journal of Industrial Organization, 13(4):421-440.

Additional references

Week 2/3  - Lecture Sep 4; Discussion, Sep 11.

Topic: Managerial ability and risk tolerance

Lucas, Robert E., Jr. (1978): “On the size distribution of business firms.” Bell Journal of Economics, 9(2):508-523.

Kihlstrom, Richard E., and Jean-Jacques Laffont (1979): “A general equilibrium entrepreneurial theory of firm formation based on risk aversion.” Journal of Political Economy, 87(4):719-748.

Thompson, Peter (2007): "Entrepreneurs, Small Business Management, and Organized Labor. FIU working paper

Additional references

Week 3/4 - Lecture Sep 11; Discussion Sep 18.

Topic: Are entrepreneurs wealth constrained?

Evans, David S., and Boyan Jovanovic (1989): “An estimated model of entrepreneurial choice under liquidity constraints.” Journal of Political Economy, 97(4):808-827.

Chen, Jing (2008): "Wealth constraints and self-employment: Evidence from birth order." Working Paper 08-08, Florida International University.

Nanda, Ramana (2008): "Cost of external finance and selection into entrepreneurship." HBS Working Paper 08-047, Harvard Business School.

Additional references

Week 4/5 - Lecture Sep 18; Discussion Sep 25.

Topic:  Innovation and entrepreneurship

Holmes, Thomas J., and James A. Schmitz, Jr. (1990): “A theory of entrepreneurship and its application to the study of business transfers.” Journal of Political Economy, 98(2):265-294.

Week 5/6 - Lecture Sep 25; Discussion Oct 2

Topic: Jacks of all trades, hobos, and misfits

Lazear, Edward P., (2002): “Entrepreneurship.” Journal of Labor Economics, 23(4):649-680.

Astebro, Thomas, and Peter Thompson (2007): “Does it pay to be a Jack of all trades?.” Working paper 07-xx, Department of Economics, Florida International University.

Week 6/7 - Lecture Oct 2; Discussion Oct 9

Topic: Overconfidence and entrepreneurship

Bernardo, Antonio, and Ivo Welch (2001): “On the evolution of overconfidence and entrepreneurship.” Journal of Economics & Management Strategy, 10:301-30.

Landier, Augustin, and David Thesmar (2006): “Financial contracting with optimistic entrepreneurs: theory and evidence.” Review of Financial Studies, forthcoming.

Van den Steen, Eric (2004): “Rational overoptimism (and other biases).” American Economic Review, 94(5):1141-51.

Week 7/8 - Lecture Oct 9; Discussion Oct 16.

Topic: Entrepreneurship and spinoffs

Anton, James J., and Dennis A. Yao (1995): “Start-ups, spin-offs, and internal projects.” Journal of Law, Economics, and Organization, 11:362-378.

Additional references

Part B. The Performance of Young Firms and Industries

Week 8/9 - Lecture Oct 16; Discussion Oct 23.

Topic: The persistence of founding conditions

Klepper, Steven, and Kenneth Simons (2000): "Dominance by birthright: entry of prior radio producers and competitive ramifications in the U.S. television receiver industry." Strategic Management Journal, 21(10-11):997-1016.

Klepper, Steven, and Kenneth Simons (2000): "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry." Journal of Political Economy, 108 (4):728-760.

Johnson, Jay (2003): "The Determinants of Entry: An Analysis of Entrants and Non-Entrants into the Market for MTBE." Unpublished paper.

Klepper, Steven (2002): "The capabilities of new firms and the evolution of the US automobile industry." Industrial and Corporate Change, 11(4):645-666.

Additional references

Week 9/10 - Lecture Oct 23; Discussion Oct 30.

Topic: Firm age and growth

Jovanovic, Boyan (1982): “Selection and the evolution of industry.” Econometrica, 50(7):649-670. (read only sections 1-3).

Cooley, Thomas F. and Vincenzo Quadrini (2001): “Financial markets and firm dynamics.” American Economic Review, 91(5):1287-1310.

Klepper, Steven, and Peter Thompson (2007): “Submarkets and the evolution of market structure.” Rand Journal of Economics, 37(4):862-888.

Additional references

Week 10/11 - Lecture Oct 30; Discussion Nov 6.

Topic: Learning by doing

Thompson, Peter (2008): "Learning by doing." Working paper 08-06, Florida International University

Week 11/12  - Lecture Nov 6; Discussion Nov 13.

Topic: Industry shakeouts

Jovanovic, Boyan, and Glenn MacDonald (1994): “The life cycle of a competitive industry.” Journal of Political Economy, 102:322–47.

Klepper, Steven (2002): “Firm survival and the evolution of oligopoly.” RAND Journal of Economics, 33(1):37–61.

Klepper, Steven, and Simons, Kenneth L. (2000): “The making of an oligopoly: Firm survival and technological change in the evolution of the U.S. tire industry.” Journal of Political Economy, 108:728–60.

Week 12/13 - Lecture Nov 13; Discussion Nov 20.

Topic: Industry clusters

Rebitzer, James (2006): “Job hopping in Silicon Valley: The microfoundations of a high tech industrial district.” Review of Economics and Statistics, Vol. 88, No. 3, Pages 472-481.

Franco, April F., and Matthew F. Mitchell “Covenants not to compete, labor mobility, and industry dynamics,” working paper, University of Iowa.

Sorenson, Olav, and Pino G. Audia (2000): “The social structure of entrepreneurial activity: Geographic concentration of footwear production in the U.S., 1940-1989.” American Journal of Sociology, 106:424-461.

Klepper, Steven (2004): “Agglomeration through spinoffs: How Detroit became the capital of the U.S. automobile industry,” working paper, Carnegie Mellon University.

Part C. Presentation of Research Proposals

Week 14 - Dec 4

Topic: Student Presentations