Public Economics and Start-Up Entrepreneurs

The government policies that target start-up entrepreneurs have a significant effect on new firm success.In addition to government policy, many other factors act as sources of market failure for entrepreneurs. Initially, external factors related to firm failure are discussed.While these factors are especially focused upon the process of creative destruction, other potential external barriers include inefficiencies in innovating activities, rent-seeking, product differentiation, and location.Then non-financial barriers to entrepreneurial success are discussed, including natural advantages of incumbent firms, artificial barriers to entry created by incumbent firms, and governmental policies that deter entry by new firms. Barriers to financial support are also significant and are discussed in terms of the forms of financing, such as loans, equity finance, and venture capital. The labor market is also an area of concern, with new firms experiencing potential difficulties gauging the quality and suitability of new employees and determining competitive wages and benefits.Based on the extent of market failures, public policy plays a potentially important role in mediating these barriers to market success.Several policies are suggested, and their implications are discussed. (AKP)