Abstract
It is typically assumed that people engage in entrepreneurship because there are profits to be made. In contrast to this view, this paper argues that entrepreneurship is more adequately characterized as a non-profit-seeking activity. Evidence from a broad range of authors and academic fields is discussed showing that entrepreneurship does quite generally not pay in monetary terms. Being an entrepreneur seems to be rather rewarding because it entails substantial non-monetary benefits, like greater autonomy, broader skill utilization, and the possibility to pursue one’s own ideas. It is shown how incorporating these non-monetary benefits into economic models of entrepreneurship can lead to a better understanding of the phenomenon.
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Notes
Entrepreneurship can therefore be seen as a source of “procedural utility” (Frey, Benz, & Stutzer, 2004), meaning that people do not only value material outcomes, but also the processes and conditions leading to outcomes.
It is an interesting question why there is a superstar-distribution of entrepreneurial incomes. This is further explored in “Why is there a superstar-distribution of entrepreneurial incomes?” and “Counterarguments and alternative explanations.”
Several of these studies also show that the higher job satisfaction of self-employed people is not due to different personality characteristics. If e.g., intrinsically optimistic people are more likely to be self-employed, and at the same time report higher job satisfaction regardless of their employment situation, a positive relationship between self-employment and job satisfaction might merely reflect personality differences. Using an individual-fixed-effects methodology in panel data, Frey and Benz (2003), Kawaguchi (2002) and Hundley (2001) document that this is unlikely to be the case. It is also noteworthy that the self-employment—job satisfaction result does not crucially depend on the definition of self-employment. Blanchflower (2004), for example, shows that self-employed business owners with employees, who can be considered as the most ‘entrepreneurial’ group within the self-employed, have generally the highest job satisfaction among self-employed people.
If, for example, a logarithmic production function is assumed, F(H) = log(H), then it follows from Eq. 12 that H* = s·A/w. The resulting entrepreneur’s income is s·A·log(s·A/w)−s·A, i.e., the production costs s·A rise proportionally with A, while the output s·A·log(s·A/w) rises more than proportionally with A (see Fig. 2).
It should be noted that the model of Murphy et al. (1991) only includes one dimension of ability, while Lazear’s (2005) model stresses the importance of the balance of abilities for entrepreneurship. The two approaches can be made compatible when A is assumed to be a measure for the balance of abilities rather then a measure for general ability.
The full passage in Schumpeter (1934: 93–94) reads as follows: First of all there is the dream and the will to found a private kingdom, usually, though not necessarily, also a dynasty. [...] Then there is the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself. From this aspect, economic action becomes akin to sport [...]. The financial result is a secondary consideration, or, at all events, mainly valued as an index of success and as a symptom of victory, the displaying of which very often is more important as a motive of large expenditure than the wish for the consumers’ goods themselves. [...] Finally, there is the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity. [...] Our type seeks out difficulties, changes in order to change, delights in ventures.”
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Acknowledgement
I would like to thank Thomas Astebro, William Baumol, Gary Becker, Raquel Bernal, Patrick Bolton, Robert D. Cooter, Bruno S. Frey, Gerald Hosp, Paul DiMaggio, Henry Hansmann, Amir Licht, Raymond Miles, Ebba Norsted, Alois Stutzer, Tom Tyler, Burton Weisbrod, Oliver Williamson, several anonymous referees and seminar participants at UC Berkeley, Northwestern University, Harvard Business School and the University of Zurich for helpful comments and discussions. The paper was written while I was a visiting research fellow at the Boalt School of Law, University of California at Berkeley, whose hospitality I gratefully acknowledge, as well as financial support by the Swiss National Science Foundation.
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Benz, M. Entrepreneurship as a non-profit-seeking activity. Int Entrep Manag J 5, 23–44 (2009). https://doi.org/10.1007/s11365-006-0031-y
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DOI: https://doi.org/10.1007/s11365-006-0031-y
Keywords
- Entrepreneurship
- Self-employment
- Wage and return differentials
- Non-monetary work benefits
- Job satisfaction