Entrepreneurship and Organization Design

We model entrepreneurship and the emergence of …rms as an out- come of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that oc- cupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building e¢ cient organizations and o¤ering potentially well- paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent en- trepreneurs. This result may help explain the empirically low returns to entrepreneurship.