Chapter 3

Question 1

utility

Answer 1

either measured as a monetary benefit or in terms of nonmonetary benefits, such as freedom and autonomy.

Question 2

income

Answer 2

uncertain revenue minus the certain costs

Question 3

why do people choose entrepreneurship

Answer 3

nonmonetary benefits (self-fulfillment, independence, autonomy and flexibility) & monetary benefits, but not because of necessity

Question 4

nonmonetary

Answer 4

not of or relating to money

Question 5

monetary

Answer 5

of or relating to money

Question 6

who is more satisfied self-employed or paid employed?

Answer 6

self-employed even though they get paid less.

Question 7

is self-employed always better and why not?

Answer 7

no, work too long and in social hours which results in more stress and weaker health, worse training, more injuries/accidents, less safe, sometimes struggle to get paid

Question 8

Why do people still choose entrepreneur if relative it seems so much worse?

Answer 8

entrepreneurs under-report their true income.

Question 9

how do research found out about this information when people are reluctant?

Answer 9

asks about their spending → you can use this to calculate income → calculate relative income employer and employee

Question 10

Richard Kihlstrom and Jean-Jacques Laffont’s model

Answer 10

formalised the importance of risk-taking propensity

Question 11

Lucas’s model

Answer 11

Ability determines the likelihood of becoming an entrepreneur.

Question 12

Entrepreneurial ability

Answer 12

explains an entrepreneur’s ability to grow a business: able entrepreneurs scale-up their firm because their talents can spread over a wide span of business activities.

Question 13

what is the problem with lucas model

Answer 13

does not define exactly what entrepreneurial ability is.

Question 14

Edward Lazear extended Lucas’s model

Answer 14

skills (a proxy for ability) are either specialist or general: Those with specialist skills such as marketing or finance tend to become employees. Meanwhile, those with general skills (‘jack of all trades’) become entrepreneurs.

Question 15

Murray Frank’s model

Answer 15

a person close to retirement will devote less effort to their business than a younger person.

Question 16

problem traditional economic analyses of start-ups

Answer 16

focus on person and business not societal structures and institutions influences

Question 17

Social capital

Answer 17

the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. Social capital thus comprises both the network and the assets that may be mobilized through that network.

Question 18

positive effect of social capital

Answer 18

credibility, information, support, build trust and reciprocity, making it easier and ‘cheaper’ to do business.

Question 19

what are strong and weak ties

Answer 19

family and friends & business contacts and acquaintances

Question 20

3 problems with occupational choice framework

Answer 20

1. only focusses on self-employment, 2. we do not always make rational decisions, and 3. only focus on who becomes an entrepreneur but not how or what the outcome will be

Question 21

On what is the occupational choice framework based

Answer 21

1. people can choice between self-emplyed or employee, 2. they chose based on relative utility, and 3. entrepreneur is more uncertain than jobless or waged income.