A theory of serial entrepreneurship |
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Authors: | Jose Plehn-Dujowich |
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Institution: | (1) Fox School of Business, Temple University, Philadelphia, PA, USA |
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Abstract: | The contribution of serial entrepreneurs to entrepreneurial activity is significant: in Europe, 18–30% of entrepreneurs are
serial; in the US, their contribution is about one-eighth. Yet, theories of entrepreneurship and industry dynamics presume
that all firms are launched by novice entrepreneurs and firm failure is synonymous with exit from entrepreneurship. We propose
a theory of serial entrepreneurship in which an entrepreneur has three occupational choices: maintain his business in operation,
shut it down to enter the labor market to earn an exogenous wage, or shut it down to launch a new venture while incurring
a serial startup cost. In equilibrium, a high-skill entrepreneur shuts down a business of low quality to become a serial entrepreneur,
launching and subsequently closing firms until a high quality business is found; a low-skill entrepreneur shuts down a business
of low quality to enter the labor market, never to become a serial entrepreneur. A decrease in the wage or serial startup
cost, or an increase in the startup capital, enhances the contribution of serial entrepreneurs to entrepreneurial activity
and promotes new firm formation (by increasing entrepreneurship and the number of new firms that survive), but its effect
on the exit rate of new firms is ambiguous. We show the model is consistent with evidence relating to the impact of an entrepreneur’s
characteristics and prior experience in entrepreneurship on the survival of his firm and his entry into and survival in entrepreneurship. |
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