ENTREPRENEURSHIP OVER THE LIFE CYCLE: WHERE ARE THE YOUNG ENTREPRENEURS?

Andrés Hincapié

International Economic Review, 2020, vol. 61, issue 2, 617-681

Abstract: Most individuals do not start a business and, if they do, they start well into their 30s. To explain these stylized facts, I estimate a dynamic Roy model with experience accumulation, risk aversion, and imperfect information about ability using the Panel Study of Income Dynamics. Information frictions and income risk reduce entrepreneurship by up to 40% and 35%, respectively. Entry costs and information frictions explain most of the delayed entry. Results from counterfactual policies targeting delayed entry suggest that entrepreneurship education can yield higher returns than subsidies. Fostering young entrepreneurship yields higher returns than fostering old entrepreneurship.

Date: 2020
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