Hvide & Oyer (2017): Dinner Table Human Capital
and Entrepreneurship
Presented by Shuo Shi
China Center for Economic Studies
Fudan University
Mar. 15th, 2018
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Motivation and Contribution I
Three facts:
1
Son followership
Most male entrepreneurs (EPNs) start a firm in their father’s or a
closedly related industry.
2
Intelligence correlation
With higher-IQ, a male EPN less likely follows his father.
3
Father advantage
In the same 5-digit indus, a father-in son outperforms his
counterpart.
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Shuo Shi (CCES, FDU)
Dinner Table Entrepreneurship
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Motivation and Contribution II
Q: How does human capital transimission within famillies affect
entrepreneurship dicisions?
A: “Dinner table human capital” (
) matters in
what type of firm is started
how well it performs
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Shuo Shi (CCES, FDU)
Dinner Table Entrepreneurship
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Framework
1
Introduction
2
Model
3
Data
4
Results
5
Mechanisms
6
Conclusion
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Dinner Table Entrepreneurship
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1. Introduction
Figure 1: Entrepreneurial Engry into Father’s 2-Digit Industry and Technology
Sector by IQ
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Dinner Table Entrepreneurship
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Literature Review
Becker & Tomes (1979): parental investments matter for child
outcomes.
Entrepreneurship in families: genetics and social effects
(Lindquist, Sol, & van Praag, 2015; Sorensen, 2007)
Entrepreneurial Heterogeneity
(Levine & Rubinstein, 2016; Hurst & Pugsley, 2011)
Parents and children: social-economic dimension
(Chetty et al., 2016; Bell et al., 2017)
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Dinner Table Entrepreneurship
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2. Model
Following Evans & Jovanovic (1989), this model considers two
decisions:
1
become an EPN or a wage worker?
2
start in which sector if as an EPN?
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Dinner Table Entrepreneurship
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Equation 1: Employee Payoff
The payoff from being an employee (wage worker) is determined by
ω = a + h0 ∗ IQ
(1)
where
ω: log wages
a > 0 “Job match”: an individual-specific term
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Shuo Shi (CCES, FDU)
Dinner Table Entrepreneurship
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Equation 2.1: Father-in Entrepreneurial Payoff
If the firm is started in the same sector as a parent worked, which we
denote sector 1, the payoff is
e1 = K + h1 ∗ IQ + ε 1
(2)
K > 0 is the dinner table knowledge from parents
h1 : marginal gain of IQ
ε 1 is an iid random term
Assume: K is weakly depends on IQ
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Dinner Table Entrepreneurship
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Equation 2.2: Father-out Entrepreneurial Payoff
If the firm is started in a sector different from where an EPN’s parent
worked, which we denote sector 2, the payoff is
e2 = h2 ∗ IQ + ε 2
(3)
h2 : marginal gain of IQ
ε 2 is an iid random term
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Dinner Table Entrepreneurship
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Interesting Case: h1 < h2
Why h1 < h2 ? Natural resaons:
1
Industry: higher IQ, higher gain
2
Education: higher IQ, lower cost; thus the return is higher.
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Dinner Table Entrepreneurship
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IQ’s Role and Full Separation
Due to the model linearity, the optimal set of IQ values will be convex.
Thus the respective opitimal sets are
1
W : wage worker
2
S1 : father-in
3
S2 : father-out
Full separation:
a state where each of the career opitios are optimal for an interval
of IQ.
non-empty
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Dinner Table Entrepreneurship
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Sector Choice
Figure 2: Sector Choice .
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Dinner Table Entrepreneurship
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3. Data I
Developed Norway:
a large middle class
equal distribution of disposable income
difficult tax evasion
Sample: all Norweigian men
aged 22 to 45 in 1996
1999 to 2007
size: 660,000
Entrepreneur:
a person with more than 33% percent ownership of the total
shares
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Dinner Table Entrepreneurship
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Data II
Four different register databases
1
Accounting information:
Dun & Bradstreet’s database
2
Individual information:
Statistics Norway
3
IQ data:
the Norwegian military records
4
New firm founding documents:
Brønnøysund-registeret
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Dinner Table Entrepreneurship
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Summary Statistics I
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Dinner Table Entrepreneurship
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Summary Statistics II
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Dinner Table Entrepreneurship
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4. Empirical Model and Results
A linear probability model is
yit = β0 + x it′ β1 + zit′ α + ξi + µt + ε it
(4)
where
individual i
year t from 1999 to 2007
yit = 1 if the person starts a business between 1999 and 2007,
otherwise yit = 0
x it : column vector of independent variable, i.e. IQ
zit : column vector of control variables, i.e. education, age, etc.
ξi and µt : fixed effect
ε it : random effect
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Dinner Table Entrepreneurship
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4.1 Entrepreneurial Entry
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Dinner Table Entrepreneurship
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4.2 Startup Type and Scale I
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Dinner Table Entrepreneurship
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4.2 Startup Type and Scale II
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Dinner Table Entrepreneurship
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4.3 Startup Performance: Survival I
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4.3 Startup Performance: Survival II
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Dinner Table Entrepreneurship
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4.3 Startup Performance: Excellent
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Dinner Table Entrepreneurship
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Mechanisms
To support the empirical results, use two sets
1
Comparison:
EPNs whose father is dead upon starting up the firm
2
Expansion:
all workers in Norway
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Dinner Table Entrepreneurship
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Conclusion
IQ vs Paternal-care, which wins?
Develop a model of individual choosing industry
Use Norwegian data between 1999 and 2007, and find:
1
2
3
Son followership
Intelligence correlation
Father advantage
Mechanism comparison and expansion
Conclude:
dinner table human capital matters
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Shuo Shi (CCES, FDU)
Dinner Table Entrepreneurship
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