ECONOMICS OF
ENTREPRENEURSHIP- TUTORIAL
NOTES
TUTORIAL 1
Austrian school of economics
- Individual is the only one that decides, not the firm or other organizations. These individuals interact
and they make the decision in the end. The individual is subjective and irrational, you all value other
things.
- Schumpeter: creative destruction. Destroying/disrupting the market with a new idea. The old firms
that won’t progress are destructed. Industrial revolution; firms that do manual work are disappearing.
- Knight: uncertainty vs. risk; risks can be calculated. Uncertainty: you know there is a risk but you don’t
know how large it is.
- Kirzner: entrepreneurs are discoverers; they discover the idea. Alert individuals discover profit
opportunities.
o Effectuation principles messy process of discovery; not very straightforward path (vague
idea speaking with others and learning from others, sharping your ideas, interacting and
learning
o Opportunity creation seizing opportunities or creating them. Stepping in vs. creating an
opportunity. Was there already a market or was it created?
- Baumol: framework about entrepreneurship. It doesn’t just depend on individuals abilities to become
an entrepreneur, but also on cultural, institutional factors. E.g. education; people who learn how to
develop ideas and think of entrepreneurs from an early age on, will maybe have an easier way/be
more likely becoming an entrepreneur themselves.
TUTORIAL 2
Sorgner
- Occupational choice model entrepreneurship is an occupation; it is an alternative choice
- Individuals rationally weigh the expected outcomes and underlying risks, given their perceived
entrepreneurial skills
- Opportunity cost
- Does the occupational environment influence the decision of employees to become an entrepreneur?
o Hypothesis 1: the probability of switching from paid employment into self-employment is
higher in occupations with a relatively high occupation-specific unemployment level (higher
risk of being unemployed in a sector lower wages, high risk of being fired; low opportunity
cost of moving in an entrepreneurial job (e.g. sectors that were closed during covid)
, o Hypothesis 2a: higher occupational earnings risk increases the probability of entrepreneurial
entry. Less risk averse person chooses occupation with a higher earnings risk
o Hypothesis 2b: a higher expected occupation-specific income decrease the probability of
entrepreneurial entry. Low mean wage/high wage variation/low probability of become top
earner
o Hypothesis 2c: failure to achieve an expected occupation-specific income increases the
probability of entrepreneurial entry . income below expectation entrepreneurship (lower
opportunity costs)
o Hypothesis 3: individuals in occupations that require a high level of skill variety have a
relatively high propensity of entrepreneurial entry. Individuals with diverse skill set more
willing to set up own business because they recognize opportunities and a variety of skills is a
necessary for entrepreneurs
o Hypothesis 4: individuals in occupations that are characterized by high levels of self-
employment have a relatively high propensity to set up an own business. In occupations with
high level of self-employment you observe more other entrepreneurial persons
2b+3 not sig
TUTORIAL 3: THE ROLE OF INSTITUTIONS
Stenholm et al.
4 pillars
Regulative laws, regulations, policies in a country. To what extent is the country able to enforce the laws
that are there?
Cognitive perceived opportunities, perceived skills, mindset, are you able to see where opportunities are
for entrepreneurship? Do you think you are able to do it?
Normativesocial norms, values and beliefs. Promoting entrepreneurship as something good= more
entrepreneurial activity, focus on stability has less entrepreneurial activity. Norms; e.g. is it allowed to act
unfair?
Conducive (about quality) resources, skills and technology. Captures the aspect that are not captured by
the other pillars. E.g. infrastructure of the company/country, availability of financial resources.
Cooperation between universities and firms.
Focus on rate and type of entrepreneurship.
2 sig relations:
- h1a; rules in a country are positively associated with the rate of entrepreneurs
- conducive dimension affects the type of entrepreneurship
Baumol
Distinguish between type and quantity of entrepreneurial activity. ; productive, unproductive (doing things that
are unproductive; lobbying. Making profit for the firm, not taking into account the cost of these behaviors for
society. Early rent seeking (trying to increase the capital, not by investing it but by trying to protect your
entreprise e.g. tax evasion) and destructive (entrepreneurship is not per se something good in itself).
ENTREPRENEURSHIP- TUTORIAL
NOTES
TUTORIAL 1
Austrian school of economics
- Individual is the only one that decides, not the firm or other organizations. These individuals interact
and they make the decision in the end. The individual is subjective and irrational, you all value other
things.
- Schumpeter: creative destruction. Destroying/disrupting the market with a new idea. The old firms
that won’t progress are destructed. Industrial revolution; firms that do manual work are disappearing.
- Knight: uncertainty vs. risk; risks can be calculated. Uncertainty: you know there is a risk but you don’t
know how large it is.
- Kirzner: entrepreneurs are discoverers; they discover the idea. Alert individuals discover profit
opportunities.
o Effectuation principles messy process of discovery; not very straightforward path (vague
idea speaking with others and learning from others, sharping your ideas, interacting and
learning
o Opportunity creation seizing opportunities or creating them. Stepping in vs. creating an
opportunity. Was there already a market or was it created?
- Baumol: framework about entrepreneurship. It doesn’t just depend on individuals abilities to become
an entrepreneur, but also on cultural, institutional factors. E.g. education; people who learn how to
develop ideas and think of entrepreneurs from an early age on, will maybe have an easier way/be
more likely becoming an entrepreneur themselves.
TUTORIAL 2
Sorgner
- Occupational choice model entrepreneurship is an occupation; it is an alternative choice
- Individuals rationally weigh the expected outcomes and underlying risks, given their perceived
entrepreneurial skills
- Opportunity cost
- Does the occupational environment influence the decision of employees to become an entrepreneur?
o Hypothesis 1: the probability of switching from paid employment into self-employment is
higher in occupations with a relatively high occupation-specific unemployment level (higher
risk of being unemployed in a sector lower wages, high risk of being fired; low opportunity
cost of moving in an entrepreneurial job (e.g. sectors that were closed during covid)
, o Hypothesis 2a: higher occupational earnings risk increases the probability of entrepreneurial
entry. Less risk averse person chooses occupation with a higher earnings risk
o Hypothesis 2b: a higher expected occupation-specific income decrease the probability of
entrepreneurial entry. Low mean wage/high wage variation/low probability of become top
earner
o Hypothesis 2c: failure to achieve an expected occupation-specific income increases the
probability of entrepreneurial entry . income below expectation entrepreneurship (lower
opportunity costs)
o Hypothesis 3: individuals in occupations that require a high level of skill variety have a
relatively high propensity of entrepreneurial entry. Individuals with diverse skill set more
willing to set up own business because they recognize opportunities and a variety of skills is a
necessary for entrepreneurs
o Hypothesis 4: individuals in occupations that are characterized by high levels of self-
employment have a relatively high propensity to set up an own business. In occupations with
high level of self-employment you observe more other entrepreneurial persons
2b+3 not sig
TUTORIAL 3: THE ROLE OF INSTITUTIONS
Stenholm et al.
4 pillars
Regulative laws, regulations, policies in a country. To what extent is the country able to enforce the laws
that are there?
Cognitive perceived opportunities, perceived skills, mindset, are you able to see where opportunities are
for entrepreneurship? Do you think you are able to do it?
Normativesocial norms, values and beliefs. Promoting entrepreneurship as something good= more
entrepreneurial activity, focus on stability has less entrepreneurial activity. Norms; e.g. is it allowed to act
unfair?
Conducive (about quality) resources, skills and technology. Captures the aspect that are not captured by
the other pillars. E.g. infrastructure of the company/country, availability of financial resources.
Cooperation between universities and firms.
Focus on rate and type of entrepreneurship.
2 sig relations:
- h1a; rules in a country are positively associated with the rate of entrepreneurs
- conducive dimension affects the type of entrepreneurship
Baumol
Distinguish between type and quantity of entrepreneurial activity. ; productive, unproductive (doing things that
are unproductive; lobbying. Making profit for the firm, not taking into account the cost of these behaviors for
society. Early rent seeking (trying to increase the capital, not by investing it but by trying to protect your
entreprise e.g. tax evasion) and destructive (entrepreneurship is not per se something good in itself).
