James A. Schmitz

A Theory of Entrepreneurship and Its Application to the Study of Business Transfers

We formalize a view of entrepreneurship in the spirit of Theodore W. Schultz. In this view, entrepreneurs are those individuals who respond to the opportunities for creating new products (and the like) that arise because of technological progress, for example. The theory has implications for entry and exit, specialization of labor, and business transfers. These business transfers correspond to, among other things, individuals changing jobs an sales of firms. Transfers are seen as a mechanism facilitating division of labor. We also discuss evidence on business transfers that occur through sales of firms.

Imitation, Entrepreneurship, and Long-run Growth

Despite the widespread belief that entrepreneurship is a key factor in economic development, there have been few attempts to develop formal models to analyze the phenomenon. This paper presents a model in which endogenous entrepreneurial activity is a key determinant of economic growth. The theory also differs from standard models in that growth is driven by the imitative activities of entrepreneurs. Previous theories have focused on the direct production of knowledge, underemphasizing the importance of imitation in the growth process. The paper also examines external effects arising from these entrepreneurial activities--effects distinct from those studied by Paul Romer.

What Determines Productivity? Lessons from the Dramatic Recovery of the U.S. and Canadian Iron Ore Industries Following Their Early 1980s Crisis

Great Lakes iron ore producers had faced no competition from foreign iron ore in the Great Lakes steel market for nearly a century as the 1970s closed. In the early 1980s, as a result of unprecedented developments in the world steel market, Brazilian producers were offering to deliver iron ore to Chicago (the heart of the Great Lakes market) at prices substantially below local iron ore prices. The U.S. and Canadian iron ore industries faced a major crisis that cast doubt on their future. In response to the crisis, these industries dramatically increased productivity. Labor productivity doubled in a few years (whereas it had changed little in the preceding decade). Materials productivity increased by more than half. Capital productivity increased as well. I show that most of the productivity gains were due to changes in work practices. Work practice changes reduced overstaffing and hence increased labor productivity. Changes in work practices, by increasing the fraction of time equipment was in operating mode, also significantly increased materials and capital productivity.

Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's

Does the extent of competitive pressure industries face influence their productivity? We study a natural experiment conducted in the iron ore industry as a result of the collapse in world steel production in the early 1980s. For iron ore producers, whose only market is the steel industry, this collapse was an exogenous shock. The drop in steel production differed dramatically by region: it fell by about a third in the Atlantic Basin but only very little in the Pacific Basin. Given that the cost of transporting iron ore is very high relative to its mine value, Atlantic iron ore producers faced a much greater increase in competitive pressure than did Pacific iron ore producers. In response to the crisis, most Atlantic iron ore producers doubled their labor productivity; Pacific iron ore producers experienced few productivity gains. ; This article originally appeared in the American Economic Review. (c) American Economic Association. (This abstract was borrowed from another version of this item.)

On The Turnover of Business Firms and Business Managers

This paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager. This evidence motivates two key features of the model: a match between the manager and the business, and characteristics of businesses that survive beyond the current match. The parameters of the model are estimated, and the properties of this parametric model are studied. This analysis results in a simple characterization of the workings of the small business sector.

A gain from trade: From unproductive to productive entrepreneurship

Abstract There is a large and growing theoretical literature studying the allocation of individuals and their effort amongst productive and unproductive entrepreneurial activities. Trade and competition between regions have been recognized as potentially powerful forces limiting unproductive entrepreneurial activities. In this paper we extend the technology-ladder model of Grossman and Helpman to study this issue and demonstrate conditions under which lowering of tariffs leads to a shift from unproductive to productive entrepreneurial activities.

Managerial Tenure, Business Age, and Small Business Turnover

This article explores a Census Bureau survey of the small business sector, the 1982 Characteristics of Business Owners survey, which contains information on both small businesses and the managers running them. A number of patterns are documented. For example, among small businesses of the same age, the probability that a business fails and the probability that a business is sold are both initially decreasing in the tenure of the manager at the business. Among businesses with managers who have the same tenure at their business, the probability that a business fails is decreasing in the age of the business.

Nonresponse bias and business turnover rates: The case of the characteristics of business owners survey

This article considers the problem of nonresponse in the Characteristics of Business Owners survey. It presents a novel approach for assessing the extent to which nonresponse is nonignorable. The method exploits the fact that all of the owners of multiowner firms were surveyed. The article uses information received from a responding owner to derive inferences about a nonresponding owner of the same firm. It provides evidence that nonrespondents are more likely than respondents to discontinue ownership. The article estimates a variety of models of the joint process of ownership survival and survey response and quantifies the effects of ignoring nonresponse.