Entrepreneurship as a utility maximizing response

Research on entrepreneurship has investigated what entrepreneurs do, what h appens when they act as entrepreneurs, and why they act as entrepreneurs. T his paper contributes to the latter investigation, and specifically asks wh y some people choose to be entrepreneurs, while others choose to be employe es. Responding to prior literature recognizing the lack of a coherent theor y of entrepreneurship and calling for a rigorous examination of the decisio n to become all entrepreneur, this paper presents an economic model of the career decision. We postulate that the individual chooses an entrepreneuria l career path, or a career as an employee, or some combination of the two, according to which career path promises maximal utility (or psychic satisfa ction). We assure that the individual's utility from any particular occupation, whe ther self-employed or employed, depends on income (which depends in him on ability), as well as working conditions such as decision-making control, ri sk exposure, work effort required, and other working conditions (net perqui sites) associated with that occupation. Individuals will exhibit either pre ference or aversion towards each of the specified working conditions, and i t is the degree of that preference or aversion, in conjunction with the qua ntum of each working condition, which determines the total utility that the individual will derive from each particular occupation. We show that all employees will have an incentive to be self-employed (If t hey could assemble the sa,ne resources as their employer). Also, the greate r their managerial and entrepreneurial ability the greater will he their in centive to be self-employed other things being equal. Next, we show that a more positive attitude to work (i.e., a lesser aversion to work effort requ ired) provides a greater incentive to be self-employed. The individual's degree of risk aversion also influences the choice to be a n entrepreneur The more tolerant one is of risk bearing, the greater the in centive to be self-employed. Similarly, the greater the preference for inde pendence, or decision-making control, the greater the incentive to be self- employed Finally, it is noted that perquisites (and avoidance of irksome el ements) can potentially be controlled to a greater degree when self-employe d so the individual will consider the differences in these other working co nditions when contemplating a career choice. But it is the sum of the utility and disutility front these sources which d etermines the career decision. Thus, we demonstrate that positive attitudes toward risk, work, and independence are neither necessary nor sufficient c onditions for a person to want to be an entrepreneur. Entrepreneurial abili ties and attitudes are desirable in employment situations, therefore, nn em ployer may choose to bribe an entrepreneurial Individual to be an employee by offering more income and greater independence, for example. We demonstrate that firms recruiting employees, or venture capitalists cons idering finding an entrepreneur should in their own best interests investig ate the person's attitudes toward income, risk, work, and independence as w ell as their abilities, as these attitudes underpin the person's worth as a n employee and their incentive to be self-employed. Management educators sh ould design programs which enhance the entrepreneurial abilities and attitu des of individuals, and the individuals themselves should consider their 'a ttitudinal' make-up before committing to entrepreneurship. (C) 1999 Elsevie r Science Inc.