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The Quality of Entrepreneurs*


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     This research has been supported by the ESRC, grant no RES-000-22-2080. Thanks to Oliver Hart, Eirik Kristiansen, Ed Lazear, Jim March, Lars Mathiesen, Jarle Møen, Paul Romer, three referees, and seminar participants at Aberdeen, Carnegie-Mellon, Columbia-NYU, Harvard-MIT, IBM, IZA, NHH, Stanford, USC, Zurich, Econometric Society world meeting 2005, European Science days at Steyr and J.J. Laffont Memorial conference for comments and suggestions. Special thanks to Stanford GSB for its hospitality.


What determines the quality of entrepreneurs? The article proposes a model of the interaction between individual workers’ decision to become entrepreneurs and employers’ efforts to keep their best workers and ideas. The main prediction from the model is that larger firms produce entrepreneurs of higher quality than smaller firms. Using novel and unique Norwegian data, I find that previous employer size exerts a significant influence on entrepreneurial performance. For example, increasing previous employer size from the 25 percentile to the 75 percentile increases yearly profitability on assets by 6 percentage points.