Dissertation/Thesis Abstract

Essays on firm formation
by Tergiman, Chloe, Ph.D., New York University, 2010, 144; 3428050
Abstract (Summary)

This dissertation comprises three essays that are linked by their focus on firm formation.

In Chapter I, "Entrepreneurship Does Pay," I answer the question of why someone would want to become an entrepreneur. Indeed, research has shown that the returns to entrepreneurship are low when compared with the returns to wage work. In this paper I challenge this view. I extend the data and show that the differential in earnings is in fact U-shaped, with entrepreneurs earning more than wage workers both early and late in their lives. I argue that the difference in the earnings profile can be rationalized.

In Chapter 2, "The Vote of Confidence Procedure and Efficient Budget Allocation," I tackle the problem facing a legislature that has to decide how to allocate its budget. In this paper I develop a model for and investigate the role that the vote of confidence procedure has on these budget allocation decisions. With this procedure, proposers can extract higher rents from other members of the body. As a consequence, budgets that propose investments that benefit all may not be proposed, even when they are efficient. Instead, pet projects will be financed. I test my model in a laboratory setting. The experimental results are qualitatively consistent with the theory.

In Chapter 3, I address the question of how an entrepreneur should pay his employees if he wants to maximize his profits. Indeed, in a moral hazard environment, when agents' outputs are correlated, a principal can improve the trade-off between incentives and risk-sharing by using both relative and absolute performance information. Despite clear theoretical advantages, wage schemes of this kind are rare. In this paper we study such a scheme in a controlled laboratory setting. The experimental results indicate that there are no first-order reasons to not use such schemes, which makes the lack of their use even more surprising.

Indexing (document details)
Advisor: Jovanovic, Boyan, Midrigan, Virgiliu
Commitee: Frechette, Guillaume, Schotter, Andrew, Xu, Daniel
School: New York University
Department: Economics
School Location: United States -- New York
Source: DAI-A 72/01, Dissertation Abstracts International
Subjects: Entrepreneurship, Public administration
Keywords: Entrepreneurship, Experiments, Firm formation, Principal agent, Public goods, State budget, Wage schemes
Publication Number: 3428050
ISBN: 9781124332901
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