Maria Minniti

A Dynamic Model of Entrepreneurial Learning

We model entrepreneurial learning as a calibrated algorithm of an iterated choice problem in which entrepreneurs learn by updating a subjective stock of knowledge accumulated on the basis of past experiences. Specifically, we argue that entrepreneurs repeat only those choices that appear most promising and discard the ones that resulted in failure. The contribution of the paper is twofold. First, we provide a structural model of entrepreneurial learning in which failure is as informative—though clearly not as desirable—as success. Second, to complement standard economic models in which agents are rational, we allow our entrepreneurs to have myopic foresight. Our entrepreneurs process information, make mistakes, update their decisional algorithms and, possibly, through this struggle, improve their performance.

The Entrepreneurial Propensity of Women

Entrepreneurship is becoming an increasingly important source of employment for women across many countries. The level of female involvement in entrepreneurial activity, however, is still significantly lower than that of men. We take a behavioral economics approach and, using a large sample of individuals in 17 countries, we investigate what variables influence the entrepreneurial propensity of women and whether those variables have a significant correlation with differences across genders. In addition to demographic and economic variables, we include a number of perceptual variables. Our results show that subjective perceptual variables have a crucial influence on the entrepreneurial propensity of women and account for much of the difference in entrepreneurial activity between the sexes. Specifically, we find that women tend to perceive themselves and the entrepreneurial environment in a less favorable light than men across all countries in our sample and regardless of entrepreneurial motivation. Our results suggest that perceptual variables may be significant universal factors influencing entrepreneurial behavior.

The Role of Government Policy on Entrepreneurial Activity: Productive, Unproductive, or Destructive?

This paper serves as an introduction to the special issue of Entrepreneurship Theory and Practice on government policy and entrepreneurial activity. Entrepreneurship is an important engine of growth. Government policy, in turn, shapes the institutional environment in which entrepreneurial decisions are made. Thus, government policy is important for entrepreneurship. But what policies are more conducive to productive entrepreneurship? In spite of a significant amount of work on this and related topics, there is still much we do not know about this important relationship. After reviewing recent literature on entrepreneurship policy, this paper summarizes the contributions included in this volume and puts them in the context of the ongoing research debate. The goal of the special issue is to address important unanswered questions and trigger a constructive debate among diverging views.

The Social Dynamics of Entrepreneurship

We present a framework describing the interdependence between entrepreneurial decisions at the individual level and the local amount of entrepreneurial activity. We view the entrepreneur as someone who has the ability to perceive and exploit previously unrecognized profit opportunities. His behavior, we argue, produces the conditions for new markets to develop and, as a consequence, new entrepreneurial opportunities are created. Thus, entrepreneurs act as catalysts of economic activity for the entire economy. In other words, we introduce a distinction between the microeconomic effects of entrepreneurial activity within a specific market and its effects at the aggregate level. Specifically, the goal of this paper is to show that the actual rate of entrepreneurship creates a network externality that, by favoring the concentration of a significant quantity of economic activity and by encouraging alertness, also promotes growth. If, indeed, entrepreneurship creates a network externality, then its effect on the aggregate level of activity exceeds the value of each individual entrepreneurial action, and the contribution of the entrepreneurial sector to economic growth is more than proportional to the relative size of the sector itself.

The Microfoundations of Entrepreneurship

Throughout the market process, economic incentives exist for individuals to exploit opportunities and earn profits. Individuals respond to such incentives, but their ability to recognize opportunities and redistribute resources in new and creative ways varies. Only those individuals with superior alertness toward possible changes and who are able to cope with disequilibrium move to reallocate resources and become entrepreneurs. Thus, the role of the entrepreneur is to discover and seize market opportunities by reorganizing economic resources in new and innovative ways. Yet, it remains to be explained how entrepreneurs choose whether or not to act upon a perceived profit opportunity. The goal of this paper is to provide a model describing the decision process followed by potential entrepreneurs who are faced with such opportunities. In other words, we build a model describing the decisional algorithm that causes some individuals to act upon the profit opportunities they perceive and others to discard them. Our claim is that individuals act rationally, process all available information, and decide to exploit or not to exploit a potential opportunity by comparing the subjective returns to becoming an entrepreneur with the subjective returns of performing any alternative income-producing activity. Individuals become entrepreneurs if, and only if, their subjective relative return to entrepreneurship is positive. In addition, we argue, subjective relative returns to entrepreneurship are influenced by the existing rate of entrepreneurial activity in the individuals vicinity.

Gender Differences in Entrepreneurial Propensity

Using data from representative population surveys in 17 countries, we find that the lower rate of female business ownership is primarily due to womens lower propensity to start businesses rather than to differences in survival rates across genders. We show that women are less confident in their entrepreneurial skills, have different social networks and exhibit higher fear of failure than men. After controlling for endogeneity, we find that these variables explain a substantial part of the gender gap in entrepreneurial activity. Although, of course, their relative importance varies significantly across countries, these factors appear to have a universal effect.

Entrepreneurs' Decisions on Timing of Entry: Learning from Participation and from the Experiences of Others

Depending on the type of industry, an entrepreneurs decision of when to enter an industry may be a crucial one. The longer entrepreneurs wait, the more they learn from others. However, by waiting, they reduce their ability to learn directly and the possibility of locking in competitive advantages. We suggest that the optimal time of entry depends on the hostility of the learning environment since the latter has an impact on dimensions of performance, such as profit potential and mortality risk. The environment for entrepreneurial learning is less hostile when the information to be learned is abundant and when learning from others is relatively more effective at increasing performance than learning from participation. Our results suggest that delaying entry is desirable when the environment is less hostile. Entrepreneurs, however, cannot wait forever. We show that, under some general conditions, an optimal time of entry can be determined, and discuss the specific situations in which, instead, multiple equilibria may arise.

Entrepreneurial activity and economic growth

The purpose of this paper is to show the importance of entrepreneurial activity for economic growth. Entrepreneurs are individuals who perceive and exploit profit opportunities. Every time an entrepreneur fills an existing niche in the market, he mobilises resources. This produces the conditions for new markets to develop and, as a consequence, new entrepreneurial opportunities are created. Thus, I argue, entrepreneurs are catalysts of economic growth for the entire economy. If, as I claim, entrepreneurship creates a network externality that promotes the creation of new markets, then each individual entrepreneurial action has a more than proportional impact on economic growth.

Market Processes and Entrepreneurial Studies

In 2006, Israel Kirzner received the International Award for Entrepreneurship and Small Business Research prize.1 The award cemented Kirzner’s status as a leading figure in the study of entrepreneurship. It also brought at the forefront of the literature, the important contributions that the Austrian view of markets has provided and continues to provide to the field. Indeed, the last 5 years have seen a significant amount of work in entrepreneurship as well as the emergence of a new generation of scholars whose works are rooted in the Austrian tradition. While some have continued developing Kirzner’s encompassing view of the entrepreneur and entrepreneurship (for example, see works by Koppl and Minniti), others have branched out in areas such as the theory of the firm (among others see works by Klein and Foss), institutions (see Boettke and Coyne), and economic growth (see Sautet and Leeson). The purpose of this chapter is to review the most important contributions to entrepreneurship emerging from the Austrian approach and position them properly within the context of Austrian social science.

The Dynamics of Entrepreneurship: Evidence from Global Entrepreneurship Monitor Data

Learning about entrepreneurship has major implications for the way we understand economic change and progress. At a time when governments all over the world look to entrepreneurship as a way to increase the wealth and well-being of their countries, The Dynamics of Entrepreneurship examines the causes of differences in entrepreneurial propensity between individuals, the factors that explain variations in the type and quantity of entrepreneurship at the aggregate level, and the macroeconomic implications of entrepreneurship. Using Global Entrepreneurship Monitor (GEM) data, the book brings together contributions from leading scholars to provide a comprehensive overview of current scholarship on entrepreneurial activity. Discussed topics include entrepreneurial motivation, gender and migration, entrepreneurial financing, urban entrepreneurship, growth-oriented entrepreneurship, economic growth, and regional entrepreneurship policies. The book concludes by summarizing its contribution to existing literature, with particular attention paid to the policy implications and the ongoing debate on entrepreneurship. Contributors to this volume - Maria Minniti (Southern Methodist University) Philipp Koellinger (Erasmus University) Christian Schade (Humboldt University) Elaine Allen (Babson College) Nan Langowitz (Babson College) Jonathan Levie (University of Strathclyde) Mark Hart (University of Aston). William Bygrave (Babson College) Niels Bosma (Utrecht University) Ramona Heck (CUNY - Baruch College) Edward Rogoff (CUNY - Baruch College) Zoltan Acs (George Mason University) Rolf Sternberg (Leibniz Universitat Hannover) Roy Thurik (Erasmus University) Chantal Hartog (EIM Business and Policy Research) Erik Stam (Cambridge University) Andre van Stel (University of Amsterdam) Ernesto Amoros (Universidad del Desarrollo) Oscar Cristi (Universidad del Desarrollo) Saul Estrin (London School of Economics) Tomasz Mickiewicz (University College of London) Kent Jones (Babson College) Megan Way (Babson College) David Audretsch (Indiana University)