5. Occupational Choice Model (OCM) Exam Questions & Answers 2023/2024

5. Occupational Choice Model (OCM) Exam Questions & Answers 2023/2024 Entrepreneurship definition - ANSWER-An entrepreneur is an individual who sees an opportunity and creates an organisation to pursue it (Parker, 2009) Two categories 1) Neoclassical tradition - entrepreneur leads economy into equilibrium 2) Austrian tradition - entrepreneur leads economy out of equilibrium Any activity where individuals; work for themselves and trade off risk and returns, rather than opting for safe returns in a different occupation - Theories put emphasis on different factors -- homogenous -- hetero - Lucas -- hetero - Kihlstrom & Laffrent OCM - Basic - Homogenous agents - ANSWER-- Homogenous agents choose between being an entrepreneur and paid employment - They choose based on what pays the greatest expected utility - Entrepreneurs get profit pi at no risk - Outside option is to work for wage w - If w pi, more workers join the labour market for workers and therefore wages decrease until pi = w - Equilibrium condition therefore gives us the number in each occupation Including the riskiness of entrepreneurship - Uncertainty about demand for the good, ability to produce or future costs of production