Part-Time Entrepreneurship, Learning and Ability

Recent evidence from a large cross-national study on the level of entrepreneurial activity of 40 countries has established that 80 percent of those who implement start-ups also hold outside paid jobs. To explain part-time entrepreneurship, I develop a model in which individuals become part-time entrepreneurs because they do not know their entrepreneurial ability ahead of time. Better entrepreneurs manage to transform their start-ups into successfully operating businesses; those with lower entrepreneurial ability withdraw. The model gives rise to industry selection and agrees with the empirical evidence from the Panel Study of Entrepreneurial Dynamics (PSED)