Successful Entrepreneurship

Successful Entrepreneurship

Confronting Economic Theory with Empirical Practice

C. Mirjam van Praag

Mirjam van Praag compares and contrasts the economic theory of entrepreneurship with determinants of successful entrepreneurship derived from empirical evidence, in an attempt to discover what makes for an accomplished entrepreneur. The author’s state-of-the-art historical, theoretical and empirical research on successful entrepreneurship – all from an explicit economic perspective – comprehensively addresses questions such as: ‘What are the factors that influence individuals’ decisions to start a business venture as opposed to working as an employee?’ and ‘What are the individual characteristics that make one successful as an entrepreneur?’ thereby supporting or dispelling various existing myths. Individual factors contributing to the success of entrepreneurs that are considered include, amongst others, human capital, financial capital and psychological traits. The importance of such factors for the various phases of entrepreneurship, including start-up, delivery and performance is also measured.

Chapter 5: Entrepreneurship Selection and Labour Demand

C. Mirjam van Praag

Subjects: business and management, entrepreneurship


There is a far more close correspondence between the ability of businessmen and the size of the businesses they own than at first sight would appear probable. (Marshall [1890] 1930, p. 312) Introduction In conditions of persistent high unemployment it is important to increase the demand for labour, and one way of doing so is to encourage the creation of new firms that hire employees. As Kaldor stated in 1934 in his seminal article ‘The equilibrium of the firm’, the determinant production factor for the size of any (mature) firm is the coordinating ability of the entrepreneur leading the firm. There can be at most one coordinator, coordinating all transactions in which the firm is involved, thereby restricting the size of the firm. The amount of all other factors of production employed is limited by the fixed supply of coordinating ability by the unique entrepreneur. In another seminal contribution, Coase (1937) argued similarly: that there are ‘diminishing returns to management’ in the sense of decreasing returns to scale at a given level of entrepreneurial ability. Therefore, talented persons should be particularly induced to become an entrepreneur, for these will be most successful in creating labour demand. Knowledge of the determinants of the choice for entrepreneurship and of successful entrepreneurship may help to develop policies to this end. In this chapter I develop an integrated model that considers the individual decision to become an entrepreneur as well as the ensuing firm size. Individuals who become an entrepreneur start a new business...

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