What Makes an Entrepreneur? Evidence on Inheritance and Capital Constraints

The paper studies the factors which shape entrepreneurship among young adults. It finds, using data on a British birth cohort, that the probability of self-employment depends sensitively upon whether the individual ever received a gift or inheritance. Those who were given or inherited £5,000, for example, were approximately twice as likely, ceteris paribus, to set up in business. This is consistent with, and a new test of, recent results from the US stressing the importance of capital and liquidity constraints. The paper also evaluates a number of hypotheses suggested in the literature on small businesses.