Andrei Simonov

On the Determinants of Entrepreneurial Activity: Individual Characteristics, Economic Environment, and Social Norms

This paper reviews the literature on the determinants of entrepreneurial activity and investigates to what extent differences in population, business environment and cultural values contribute to explaining differences in entrepreneurial activity across Swedish municipalities. Individual characteristics and business environment are the most important factors in explaining entrepreneurial choice. However, we find that cultural values and, most likely, social norms also matter. The data suggest that individuals are more likely to become entrepreneurs where there are more entrepreneurs, even if entrepreneurial income is lower. We explain why and to what extent this may be interpreted as evidence of social norms.

Portfolio Choice and Menu Exposure

We study the impact of menu representation on portfolio choice and we show that investors choose assets as a function of the way they are represented in the menu available to them. We use the choices of mutual funds for retirement accounts of the Swedish population. We show that investors prefer the funds that belong to categories that are more represented in the menu. More numerous categories attract more investment than what portfolio theory would suggest. Moreover, an exogenous change in the menu changes investor demand. An increase in the representation of a category in the menu increases investment in the funds belonging to the same category, including the already existing ones. By using information on the performance of the funds that investors choose and the degree of concentration of the investor portfolio, we show that there is a consistent positive correlation between the investors sensitivity to menu exposure and his degree of informativeness. This suggests that menu exposure represents a rational way of coping with limited (private) information that decreases as information improves. Our findings shed light on the home bias puzzle and insight on the determinants of style investing. They also have direct normative implications in terms of Social Security reform.

Competition in Markets for Information

Competition among sellers of information in a noisy rational expectation equilibrium is considered. Traders preferences for information are explicitly characterized. It is shown that the competition on market for information makes providers of financial information to price their products in a way that leads traders to purchase all signals available. If signals are substitutes, competition pushes the price of information lower than that in monopolistic settings. However, if signals are complements, the price of an individual signal in duopoly actually exceeds the one in monopolistic settings, and information producers are involved in tacit collusion. Externalities of information lead to counterintuitive results that (a) efficiency of the competitive market for information (as measured by quality of signals offered for sale) is no better than in monopolistic setting, and (b) competition leads to no improvement on the part of the traders as providers of financial information are still able to appropriate all of the consumer surplus.

Does Prestige Matter More than Profits for Entrepreneurs

We study whether the individual decision to become an entrepreneur, entrepreneurial profits and investment are affected by the decisions of other individuals belonging to the same social group. To overcome identification problems, we include local labor market fixed effects, social group fixed effects, and extensive controls. Moreover, we instrument the level of entrepreneurial activity in the individuals social group. The results show that in social groups where entrepreneurship is more widespread individuals are more likely to become entrepreneurs and invest more in their own businesses, even though their entrepreneurial profits are lower. This suggests that social norms create non-pecuniary benefits from entrepreneurial activity thus playing an important role in the decision to become an entrepreneur. We also evaluate alternative explanations, such as entry costs, knowledge spillovers, competition and informal credit markets. However, they do not find support in the data.