Explaining Regional Variations in Entrepreneurship as Multiple Occupational Equilibria

A human capital-based model of choice between paidemployment and entrepreneurship is proposed, which can generate multipleoccupational equilibria. The model demonstrates how different rates ofentrepreneurship can exist in regions or countries that start from differentinitial conditions but otherwise possess identical characteristics. Utilizingthe multiple equilibria mechanism, one can observe the existing occupationalstructure and choose human capital levels that influence occupational choicesand enhance occupational structure. Four points are derived from the model: (1) multiple entrepreneurshipequilibria can exist due to increases in privately-chosen human capital andhigher percentages of the region's economically active workforce with a collegedegree; (2) necessary and sufficient conditions for multiple equilibria can beanalyzed through the returns in entrepreneurship and in paid employment; (3)intuition for and stability of multiple entrepreneurship equilibria emergesbecause of the initial occupational structure; and (4) the efficiency ofmultiple equilbria is affected by inadequate information about abilities inentrepreneurship. (NEE)