Chapter 3 Flashcards
utility
either measured as a monetary benefit or in terms of nonmonetary benefits, such as freedom and autonomy.
income
uncertain revenue minus the certain costs
why do people choose entrepreneurship
nonmonetary benefits (self-fulfillment, independence, autonomy and flexibility) & monetary benefits, but not because of necessity
nonmonetary
not of or relating to money
monetary
of or relating to money
who is more satisfied self-employed or paid employed?
self-employed even though they get paid less.
is self-employed always better and why not?
no, work too long and in social hours which results in more stress and weaker health, worse training, more injuries/accidents, less safe, sometimes struggle to get paid
Why do people still choose entrepreneur if relative it seems so much worse?
entrepreneurs under-report their true income.
how do research found out about this information when people are reluctant?
asks about their spending → you can use this to calculate income → calculate relative income employer and employee
Richard Kihlstrom and Jean-Jacques Laffont’s model
formalised the importance of risk-taking propensity
Lucas’s model
Ability determines the likelihood of becoming an entrepreneur.
Entrepreneurial ability
explains an entrepreneur’s ability to grow a business: able entrepreneurs scale-up their firm because their talents can spread over a wide span of business activities.
what is the problem with lucas model
does not define exactly what entrepreneurial ability is.
Edward Lazear extended Lucas’s model
skills (a proxy for ability) are either specialist or general: Those with specialist skills such as marketing or finance tend to become employees. Meanwhile, those with general skills (‘jack of all trades’) become entrepreneurs.
Murray Frank’s model
a person close to retirement will devote less effort to their business than a younger person.
problem traditional economic analyses of start-ups
focus on person and business not societal structures and institutions influences
Social capital
the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. Social capital thus comprises both the network and the assets that may be mobilized through that network.
positive effect of social capital
credibility, information, support, build trust and reciprocity, making it easier and ‘cheaper’ to do business.
what are strong and weak ties
family and friends & business contacts and acquaintances
3 problems with occupational choice framework
- only focusses on self-employment, 2. we do not always make rational decisions, and 3. only focus on who becomes an entrepreneur but not how or what the outcome will be
On what is the occupational choice framework based
- people can choice between self-emplyed or employee, 2. they chose based on relative utility, and 3. entrepreneur is more uncertain than jobless or waged income.
