The entrepreneurship Beveridge curve

• Author: Thomas Gries,Stefan Jungblut,Wim Naudé
• Published date: 01 June 2016
• DOI: http://doi.org/10.1111/ijet.12086
• Date: 01 June 2016

doi: 10.1111/ijet.12086

The entrepreneurship Beveridge curve

Thomas Gries,∗Stefan Jungblut†and Wim Naud´

e‡

The rate of creation and failure of start-up firms can be modeled as a search and matching

process as in labor market matching models. Setting out an endogenous growth model with

entrepreneurship, we derive an entrepreneurship Beveridge curve. We use this to illustrate that

whether or not a start-up is successful depends on the efficiency with which entrepreneurial

abilities are matched with business opportunities. The entrepreneurship Beveridge curve is a po-

tentially useful analytical contribution to the formalization of the economics of entrepreneurship.

Weidentify a number of extensions and applications.

Key wor ds entrepreneurship, start-up, labor market matching

JEL classification L26, M13, O10, O14

Accepted 17 February 2015

1 Introduction

Although there are many definitions of entrepreneurship, in most it is about the discovery and

exploitation of opportunities (Shane and Venkataraman2000). How entrepreneurs spot and exploit

opportunities to start up new firms has spawned a large literature (see, for example, Buenstorf 2007;

Casson and Wadeson 2007; O’Fietand Patel 2008; Plummer et al. 2007; Ucbasaran et al. 2008).

A stylized fact of entrepreneurship is that while there always exist a large pool of latent en-

trepreneurs, many with highly developed human capital, only a small proportion succeed in starting

up a firm. This has been explained with reference to human capital (see, for example, Lazear 2005)

and the available opportunities prospective entrepreneurs face (Blanchflower and Oswald 1998).

In this paper we take these two ideas (the human capital of entrepreneurs and the availability of

opportunities) to propose a novel way of understanding start-ups.1Our aim is to make a theoretical

contribution to the economics of entrepreneurship. We borrow and adapt the concept of labor

market matching from labor economics, and apply it to describe start-ups as the outcome of a

“match” between entrepreneurs with appropriate ability and business opportunities. Obstacles in

the start-up process, including insufficient credit or stifling regulations, can in our theoretical model

be analyzed as frictions in the matching of entrepreneurial ability with opportunities.

∗Department of Economics, Paderborn University,Paderborn, Germany.

†Department of Economics, Paderborn University,Paderborn, Germany.

‡School of Businessand Economics, Maastricht University and Maastricht School of Management, Maastricht, The Nether-

lands and IZA, Institute for the Study of Labor,Bonn, Germany. Email: w.naude@maastrichtuniversity.nl

1This idea was first proposed in a more rudimentary fashion by Gries and Naud´

e (2010, 2011). Here we elaborate the idea

and propose its more general use in a variety of settings in formalizing the role of the entrepreneur in economic theory.

International Journal of Economic Theory 12 (2016) 151–165 © IAET 151

International Journal of Economic Theory