Entrepreneurship as a Utility Maximizing Response

Posted: 24 Nov 2009

See all articles by Evan Douglas

Evan Douglas

Queensland University of Technology

Dean Shepherd

University of Colorado at Boulder - Department of Management

Date Written: 2000

Abstract

Research on entrepreneurship generally answers the following questions: how entrepreneurs act, what happens when entrepreneurs act, and why people choose to become entrepreneurs. Douglas and Shepherd examine the reasons that motivate some people to become entrepreneurs, why others choose to be employees, and propose an economic model of the career decision. According to the utility-maximization model of human behavior, whereby the individual will choose the career option that promises the greatest expected utility, an individual chooses to be an entrepreneur or an employee or a combination of the two depending on each career's maximal utility or psychic satisfaction. The literature review section (providing scholarly answers to the question, "Why do people want to be entrepreneurs?") is followed by a description of the "model of entrepreneurial intentions," which evaluates the following ten characteristics of the model: (1) career choice as a utility maximizing response (the one period model), (2) entrepreneurial abilities, (3) the supply of work effort, (4) the optimal bonus rate, (5) the incentive to be an entrepreneur, (6) the impact of greater ability on the incentive to be an entrepreneur, (7) the impact of differing attitudes to work effort, (8) the impact of differing attitudes to risk, (9) the impact of attitudes to independence on entrepreneurial intentions, and (10) the impact of other working conditions on the choice to be an entrepreneur. This model has several implications. First, positive attitudes toward risk, work, and independence are neither necessary nor sufficient conditions for a person to want to be an entrepreneur. Second, all employees may have an incentive to be self-employed, but a more positive attitude toward work is a greater incentive to become self-employed. Next, the individual's degree of risk aversion influences the choice to become an entrepreneur, whereas a greater preference for independence, or decision-making control, is a greater incentive for self-employment. Finally, benefits and avoidance of irksome element can be instrumental in choosing an entrepreneurial career. It is recommended that firms recruiting employees or venture capitalists funding an entrepreneur investigate a person's attitudes toward income, risk, work, and independence abilities to determine his/her worth as an employee or potential to become self-employed.(CBS)

Keywords: Individual traits, Theoretical, Behavior theories, Employment, Self-employment

Suggested Citation

Douglas, Evan and Shepherd, Dean, Entrepreneurship as a Utility Maximizing Response (2000). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1510992

Evan Douglas (Contact Author)

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia
0161731381126 (Phone)
0161731381299 (Fax)

Dean Shepherd

University of Colorado at Boulder - Department of Management ( email )

Boulder, CO 80309-0419
United States
303-492-5962 (Fax)

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