Opportunity Versus Necessity Entrepreneurship: Two Components of Business Creation
By R. Fairlie, Frank M. Fossen. Social Science Research Network, 2018
248 citations recorded by the source corpus.
A common and seemingly paradoxical finding in the entrepreneurship literature is that business creation increases in recessions. We investigate this countercyclical pattern by separating business creation into two components: “opportunity” and “necessity” entrepreneurship. Although there is general agreement in the previous literature on the conceptual distinction between these two factors driving entrepreneurship, there are many challenges to creating a definition that is both objective and empirically feasible. The goal of this paper is to create an operational definition of opportunity versus necessity entrepreneurship using readily available nationally representative data. We create a distinction between the two types of entrepreneurship based on the entrepreneur’s prior work status that is consistent with the standard theoretical model of entrepreneurship. We document that “opportunity” entrepreneurship is pro-cyclical and “necessity” entrepreneurship is countercyclical. We also find that “opportunity” vs. “necessity” entrepreneurship is associated with the creation of more growth-oriented businesses. The operational distinction proposed here may be useful for future research in entrepreneurship. We thank Marco Caliendo, Marie Mora, Jeremy Moulton, Barbara Robles, Ting Zhang, and participants at the 2017 ASSA/AEA Annual Meeting for helpful comments and suggestions.
Subfields: Accounting, Business and International Management, Management of Technology and Innovation
View Paper: https://www.semanticscholar.org/paper/bf762a953dbc246ad2090a10786efd1050b5cad7
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Accounting
- Ting Zhang
- Milena Nikolova
- Zoltan J. Acs
- José Ernesto Amorós
- S. Desai
- David B. Audretsch
- Erkko Autio
- David Urbano
In Business and International Management
In Management of Technology and Innovation
- Ting Zhang
- Milena Nikolova
- Zoltan J. Acs
- David B. Audretsch
- W. Naudé
- Erkko Autio
- David Urbano
- E. Stam
Citations in the corpus
- Age and entrepreneurship: nuances from entrepreneur types and generation effects (2018, background): “This measure of necessity versus opportunity coincides somewhat with Fairlie and Fossen (2017), but adds more nuance in terms of whether a job loss was voluntary or not.”
- COVID‐19 crisis and SMEs responses: The role of digital transformation (2021, background): “Some of them are most likely to have innovation in their DNA because they were born from market opportunities, while others were born from necessity (necessity-driven entrepreneurship): for example, individuals who were unemployed before starting the business (Fairlie & Fossen, 2018).”
- The Impact of Covid-19 on Small Business Owners: Evidence of Early-Stage Losses from the April 2020 Current Population Survey (2020, unknown): “The CPS data are used by the Bureau of Labor Statistics (BLS) to track unemployment rates, and have been used in previous research to study determinants of business ownership (e.g. recently, Levine and Rubenstein 2017, Wang 2019, Fairlie and Fossen 2019).”
- Switching to self-employment can be good for your health (2019, methodology): “There are divergent operationalizations of the concepts of necessity and opportunity entrepreneurship (Fairlie and Fossen, 2018).9 Contributions using the GEM cross-country data rely on self-reported questions asking respondents whether they engaged in the startup activity to take advantage of a…”