Evan J. Douglas

Entrepreneurship as a utility maximizing response

Research on entrepreneurship has investigated what entrepreneurs do, what happens when they act as entrepreneurs, and why they act as entrepreneurs. This paper contributes to the latter investigation, and specifically asks why some people choose to be entrepreneurs, while others choose to be employees. Responding to prior literature recognizing the lack of a coherent theory of entrepreneurship and calling for a rigorous examination of the decision to become an entrepreneur, this paper presents an economic model of the career decision. We postulate that the individual chooses an entrepreneurial career path, or a career as an employee, or some combination of the two, according to which career path promises maximal utility (or psychic satisfaction). We assume that the individual’s utility from any particular occupation, whether self-employed or employed, depends on income (which depends in turn on ability), as well as working conditions such as decision-making control, risk exposure, work effort required, and other working conditions (net perquisites)associated with that occupation. Individuals will exhibit either preference or aversion towards each of the specified working conditions, and it is the degree of that preference or aversion, in conjunction with the quantum of each working condition, which determines the total utility that the individual will derive from each particular occupation. We show that all employees will have an incentive to be self-employed (if they could assemble the same resources as greater will be their incentive to be self-employed, other things being equal. Next, we show that a more positive attitude to work (i.e., a lesser aversion to work effort required) provides a greater incentive to be self-employed. The individual’s degree of risk aversion also influences the choice to be an entrepreneur. The more tolerant one is of risk bearing, the greater the incentive to be self-employed. Similarly, the greater the preference for independence, or decision-making control, the greater the incentive to be self-employed. Finally, it is noted that perquisites (and avoidance of irksome elements) can potentially be controlled to a greater degree when self-employed, so the individual will consider the differences in these other working conditions when contemplating a career choice.

Employment or self-employment: A dynamic utility-maximizing model

This article presents a dynamic utility maximizing model of career choice between self employment and employment that takes into consideration the differences among people in terms of their initial utility toward job attributes and the likely changes to those utility weights as they mature. These differences between people effect the choice of career that maximizes their utility and leads to five optimal career paths. This dynamic utility maximizing model helps increase our understanding of why some people become self employed but importantly why and when some self employed switch to employment.

Workaholic, or just hard worker?

Methodology/Approach: There is a lack of theoretical development on the question of why people work long hours and the nature of ‘workaholism’. This paper uses the economist’s utility-maximization model to build a conceptual model of voluntary work effort that explains the work effort decision of individuals. We demonstrate a variety of reasons that induce a person to work ‘excessively’. The paper advances our understanding of work motivation and workaholic behavior and presents a series of researchable propositions for empirical testing. Propositions: Individuals will work long hours when motivated to do so by the satisfaction they derive separately and collectively from (a) income (materialism); (b) leisure; (c) perquisites; and (d) work per se. It is argued that only the person who is strongly motivated by the latter reason is properly called a workaholic, and that the imposition of negative externalities on co-workers is a separate issue that might also involve work enthusiasts. Originality of the Paper: This paper discerns three subcategories of the ‘work enthusiast’, which we call ‘materialist’, ‘the low-leisure’ and the ‘perkaholic’ hard workers. We demonstrate that these work enthusiasts work long hours for relatively high job satisfaction, while workaholics gain relatively low job satisfaction. Inflicting negative externalities on fellow workers is argued to be a separate issue – any one of the hard workers might irk their fellow workers by working ‘too hard’ or by their individual mannerisms.

Warranty, quality and price in the US automobile market

The observed negative relationship between quality and warranty in the US auto market is analysed using a cost-based approach developed by Cooper and Ross. The theory of warranty and quality choice by producers and consumers is extended by endogenizing the joint price, quality and warranty decision. Differences in producer costs and consumer preferences are found to explain the inverse relationship, which suggests that American manufacturers should adjust their pricing, warranty and quality strategy when entering foreign markets.

Growth and Profitability in Small and Medium Sized Australian Firms

This study investigated the longitudinal behaviour of growth rates and profitability for a large sample of Australian firms. Similar to previous studies, growth rates were found to be much more volatile than profitability measures. Using a regression equation with lagged profit and growth variables, we found no evidence of a consistent relationship between growth and profitability. The longitudinal behaviour of the growth profitability relationship was also investigated. Consistent with previous research, we found that higher growth firms were on average younger. Similarly, high and low profit firms were found to be younger on average. Our results found that a higher proportion of firms pursuing the profitability pathway were much more likely to achieve high growth and profitability in following years. A much lower proportion of firms pursuing the growth pathway were likely to achieve above average performance in profitability in future years.

MBA Admission Criteria and an Entrepreneurial Mind-Set: Evidence From “Western” Style MBAs in India and Thailand

We investigate the assessments of career attractiveness by 283 MBA students from India and Thailand, to use GMAT and work experience to explain variance in mind-sets that have previously been assoc...

Perceptions: Looking at the World Through Entrepreneurial Lenses

In this chapter we consider how the perceptions of entrepreneurs might differ from those of non-entrepreneurs and how this might lead individuals to act entrepreneurially when others would not. Perceptions are reality for nascent entrepreneurs who must make business decisions in an uncertain world, based on what they see or what they think they see. We use the analogy of “entrepreneurial lenses” and discuss clear lenses (self-efficacy), rose-colored lenses (cognitive biases), blue lenses (simplistic decision rules), yellow lenses (preference for monetary gains), purple lenses (preference for intrinsic benefits), and telescopic lenses (overestimation of profits and underestimation of risks). We also consider the frames that hold the lenses (framing effects).

A CHOICE MODELING APPROACH TO PREDICT ENTREPRENEURIAL INTENTIONS FROM ATTITUDES AND PERCEIVED ABILITIES

We are interested in the antecedents to an individual’s decision to become an entrepreneur. Our approach is to consider an individual’s choice between self-employment and becoming an employee using multiattribute utility discrete-choice modeling. The attributes in the model are based on the economic factors as previously identified in the entrepreneurship literature, with an individual’s utility function based on their preferences for income, risk exposure, work effort, independence and ownership (entrepreneurial attitudes). Our point of departure is to use market simulation techniques developed in marketing, to study an individual’s intention to become self employed by explicitly relating an individual’s beliefs concerning feasible employment options (their choice set) to their perceived abilities (self-efficacy). We test the model using a survey of 414 MBA students in Thailand, China, India and Australia. We find support for the theoretical approach to the discrete-choice modeling of entrepreneurial intentions. We find that the difference in perceptions of income and independence between self-employment and employment influence an individuals’ entrepreneurial intentions. Further, we find that individuals with low entrepreneurial self-efficacy expect income to be higher for employment, but expected income for selfemployment relative to employment increases as self-efficacy increases. We find no support for perceptions of risk and work effort influencing intentions.