Entrepreneurship turnover and endogenous returns to ability

Patricia Crifo (1, 2) , Hind Sami (3)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 UCL - Université Catholique de Louvain = Catholic University of Louvain
3 COACTIS - COnception de l'ACTIon en Situation

This paper proposes a model of entrepreneurial turnover highlighting a non-monotone relationship between technological change and ability-biased sorting into entrepreneurial types. Entrepreneurial decisions are examined in a two-stage model under uncertainty in which entrepreneurs decide to abandon a project and start a new venture depending on technological change and on ability. We show that technological change affects the quality distribution of entrepreneurship by increasing the ex-ante number of entrepreneurs undertaking the most efficient projects and decreasing the post-entry number of entrepreneurs of low-quality firms who choose to continue their initial business. A higher rate of technological change is therefore likely to induce a cleansing effect on entrepreneurial activity and to alter the market perception of business creation.

Mots clés: Entrepreneur entry and exit; Technological change; Selection; Stigma

Domaines: Economies et finances

Patricia Crifo, Hind Sami. Entrepreneurship turnover and endogenous returns to ability. Economic Modelling, 2008, 25 (4), pp.585-604. ⟨10.1016/j.econmod.2007.10.005⟩. ⟨halshs-00522814⟩