Entrepreneurship at the AEA


Last week, I was lucky. Although much of my time at the American Economic Association (AEA) meeting in Boston was devoted to finding new professors for the many vacancies at the Utrecht School of Economics, careful planning made it possible to visit the central AEA session on entrepreneurship research. Clearly, entrepreneurship as a field is on the rise, however, this so far has passed the economics profession. But now the dismal science is back with a vengeance. In a session packed with top talent, the main aim was not so much to derive new hypotheses (left to business studies) but to use the tools of economics to verify some points made elsewhere.

Daron Acemoglu kicked off with paper that deals with the CEO effect on innovation. The main result of the paper does not strike as too revolutionary: firms that have young CEOs have a higher frequency of disruptive innovation. The merits of the paper are more in the way in which these results are derived. The theoretical model is nice and ‘simple’ in the sense that there is endogenous hiring of senior managers, simple heterogeneity in firm capabilities, and straightforward heterogeneity in manager ability both for innovation (young managers) and for managing incremental innovation (older managers). In such a situation young managers are matched with firms that engage in disruptive innovation. The empirics does a great job in measuring such disruptive innovation by using a weighted index of patent citations. Connecting the type of patents and thus innovation to the CEO age allows them to show that in the US there is a positive connection between youth at the top and the tendency for radical innovation.

Antoinette Schoar, also of MIT, uses a regulatory shift in France to shed some lights on the effects of increasing the incentives for entrepreneurship. Theoretically, it is unclear how better incentives for entrepreneurship affect the economy. On the one hand, entrepreneurship boosts innovation. However, on the other hand incentives making it easier to start new ventures also have the effect that many less able unemployed give it a try. By making use of a shift in policy in France that made it possible to combine unemployment benefits with starting your own business, Schoar has a comforting message: entrepreneurs that have started because of this incentive are slightly better than the average entrepreneur.

The next paper in line by Ross Levine tackles the issue of who the entrepreneurs actually are. This off course is already hotly debated in the business literature. First, Levine and Rubinstein decompose into self employment and ambitious entrepreneurship, and using the well explored longitudinal US household dataset show that these are two very different animals. But with Pikkety in mind, they then further decompose the ambitious entrepreneurs and split between the ‘rich kids’ and the truly high performers. When focussing on the high performers, in the longitudinal data they find evidence that these entrepreneurs have very high IQ scores. But that is in itself not sufficient to explain their success. It has to be combined with ample illicit activities in adolescence to explain ambitious high impact entrepreneurship.

The last paper by Petra Moser and friends possibly is the most revolutionary in its approach, at least judged by the reactions from the referees and the crowd. The paper uses lithium use as an explanatory variable for entrepreneurial performance. The reasoning is that bipolar mental disease when diagnosed is often treated with lithium. However, bipolar disease is also associated with high levels of creative thinking. As bipolar disease is devastating, on average there clearly is a negative relation between the incidence of the disease and entrepreneurship. Also for the individuals treated with lithium the scores are negative.  But if we decompose entrepreneurship, there is a positive connection between the treated with lithium use and successful high impact entrepreneurship when compared to the average citizen. This effect is particularly strong for women. The audience was surprised.

How comforting are these results for entrepreneurship? The studies show the gradual redundancy of the grey manager, the benefits of income protection for entrepreneurs, and that successful entrepreneurs are juveniles as well as mentally ill. But at least the new models are good in dealing with the complexity and the empirics novel and causal. So, confident that over time some more comforting results will show up.

Papers discussed:

Young, Restless and Creative: Openness to Disruption and Creative Innovations.
DARON ACEMOGLU (Massachusetts Institute of Technology)
UFUK AKCIGIT (University of Pennsylvania)
MURAT ALP CELIK    (University of Pennsylvania)

Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France.
ANTOINETTE SCHOAR (Massachusetts Institute of Technology)
DAVID SRAER (Princeton University)

Smart and Illicit: Who Becomes an Entrepreneur and Does It Pay?
ROSS LEVINE (University of California-Berkeley)
YONA RUBINSTEIN    (London School of Economics)

Mental Health and Entrepreneurship
MICHAEL DAHL (Aalborg University-Denmark)
PETRA MOSER (Stanford University)