New firms do not yet have employees who can aid recruiting by referrals, but entrepreneurs can recruit workers they know to their startups—in effect making their own referrals. We consider new firms in Brazil’s formal sector founded between 2002 and 2014, for which at least one founding owner can be traced to previous formal employment. We find that 35.1 percent of new firms with at least five employees hire one or more coworkers from a founding owner’s last employer in their first year of operation, and that 9.2 percent of first-year hires at new firms were coworkers at a founding owner’s last employer. The former coworkers most likely to join a founding owner’s new firm are those who, at their last employer, worked in the same plant as a founding owner, had long overlap with a founding owner, were classified in the same industry or occupation as a founding owner, and were hired at roughly the same time as a founding owner. Controlling for observable human capital and new firm fixed effects, former coworkers earn eight percent higher initial wages at new firms and are six percentage points less likely to separate before a new firm’s second year of operation. We find that the coworker wage premium diminishes with tenure by 0.5 percentage points per year and the coworker separation premium diminishes with tenure by 2.0 percentage points per year. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We explore how financial constraints distort the entry decisions among otherwise productive entrepreneurs and limit growth of promising young firms. A model of liquidity-constrained entrepreneurs suggests that the easing of credit constraints can induce more entry of firms with greater long-run growth potential than the easing of conventional entry barriers would bring about. We explore this growth mechanism using a large-scale program to expand the supply of credit to small and medium enterprises in Brazil. Local credit supply shocks generate greater firm entry but also greater exit with no effect on short-run employment growth in the formal sector. However, credit expansions increase average capability among entering firms, which enter at larger size, survive longer, and grow faster. These firm dynamics are more pronounced in areas with weaker credit markets ex ante and consistent with local bank branches using cheap targeted credit lines to expand lending more broadly. Our findings provide new evidence on the general equilibrium effects of credit supply expansions.

We draw on household survey data from countries of all income levels and document that average unemployment rates increase with gross domestic product per capita. This is accounted for almost entirely by low-rather than high-educated workers. We interpret these facts in a model with frictional labour markets, a traditional self-employment sector, skill-biased productivity differences across countries, and unemployment benefits that become more generous with development. A calibrated version of the model does well in explaining the cross-country patterns that we document. Counterfactual exercises point to skill-biased productivity differences as the most important factor in explaining the cross-country unemployment patterns.

We model network formation in a firm.Agents learn about the quality of their working relationships with each other.Their good relationships become their networks.Accumulating relationships becomes increasingly costly, however.Over time agents become less open to forming relationships with others unknown to them, leading their networks to be front-loaded with agents they met near the beginning of their careers.The interaction of this dynamic with turnover yields predictions about the time pattern of history dependence in an agent's network as a function of his tenure.Mutual openness of newly arrived agents in a firm also leads to the crosssection prediction of "cohort attachment," a tendency for members of an agent's hiring cohort to be disproportionately represented in his network.When members of a network formed within a firm are subsequently split across many firms, the desire to renew their successful working relationships can lead to job referrals.Former co-workers who provide referrals will be drawn disproportionately from the referred workers' hiring cohorts at their previous employers.

Based on two linear deterministic demand models, the sales revenue function of a multivariate quadratic form is formulated in this paper to determine the optimal offline and online selling prices for a retailer in a monopolistic environment. The impacts of the uniform delivery lead time on the retailer’s optimal pricing scheme and profitability are analytically examined. A numerical study is conducted to demonstrate these impacts.

It is well established that employee spinoffs learn their parents’ technologies, but little is known about their demand-side learning. We exploit the identification in international trade data of parent markets (countries) to investigate whether exporting employee spinoffs of exporting parents have an advantage in accessing their parents’ markets over exporting comparison firms well positioned to learn those markets at arm’s length. We find that, controlling for the greater overlap of spinoffs with their parents’ export products, at entry spinoffs access 51 percent more parent markets than exporting firms in the same 4-digit industries and municipalities as the parents. This advantage shrinks monotonically with time, becoming statistically insignificant four years after entry, indicating that intrafirm learning provides spinoffs with a four-year head start over learning at arm’s length. Spinoffs do not overlap more than comparison firms with parent markets that the parents did not serve at spinoff entry, providing evidence against the alternative hypothesis that product overlap inadequately controls for greater technological similarity of spinoffs to parents. Firm entry into parent markets predicted by spinoff status does not lead to entry into “adjacent” markets the following year.

We develop a model of costly network formation in which agents learn about the quality of their matches. By retaining good connections, agents become increasingly reluctant to form matches of unknown quality, leading their networks to be front-loaded with agents they met near the beginning of their careers. This reluctance combined with turnover naturally gives rise to “cohort attachment”: new agents form links with each other because the agents already there are reluctant to form links with them. When members of a network formed within an organization are subsequently split across many organizations, the desire to renew their successful working relationships leads to job referrals. Using matched employer-employee data from Brazil, we find that the presence of a hiring-cohort former co-worker increases the probability of job acquisition at a specific hiring plant nearly three times more than the presence of a non-hiring-cohort former co-worker. We attempt to mitigate lack of random assignment of former co-workers to job seekers by controlling for observable similarities and by using placebo co-workers, placebo hiring plants, and peers-of-peers instruments for presence of former co-workers.

One of the leading theories of entrepreneurship is that less risk averse individuals become entrepreneurs and more risk averse individuals become their employees. Kihlstrom and Laffont (1979) formalized this insight in an elegant and widely taught general equilibrium model. However, their model has not been further developed. A reason may be that their main comparative static result, that an economy-wide increase in risk aversion lowers the equilibrium wage, appeared to require the assumption that all agents had identical risk aversion index, throwing out their motivating insight and indicating that the model is intractable. In this note we prove this comparative static result on risk aversion and wages in general equilibrium, retaining agent heterogeneity in risk aversion and the endogenous division of agents into less risk averse entrepreneurs and more risk averse workers, without adding any assumptions not already in the original paper. Besides the intrinsic value of the result, we hope to increase the usefulness of the Kihlstrom and Laffont (1979) model for other researchers and to facilitate improvement in its exposition for the many graduate courses in which it is taught.

We investigate entry in a dynastic entrepreneurship (overlapping generations) environment created by employee spinoffs. Contracting failures, caused by non-verifiability of profits from new activities in original firms and overall profits from subsequent entrants, may lead respectively to implementation of new employee ideas in spinoffs and constraints on borrowing to buy out non-compete agreements. If borrowing constraints are not binding, enforcement of non-compete agreements unambiguously improves social welfare outcomes, increasing the entry of both original firms and subsequent generations of spinoffs. However, if employees are unable to buy out their non-compete covenants, enforcement of these agreements shuts down socially profitable spinoff firms. Non-enforcement sacrifices entry of original firms that would be marginally profitable in the absence of employee spinoffs, but otherwise clearly improves social welfare outcomes over enforcement in the presence of binding finance constraints.

It has been argued that the charitable activities and religiosity of Islamist political parties may attract less-educated citizens and reverse the standard positive correlation between education and political participation. We surveyed active members of Jordan's Islamic Action Front (IAF), and found them to be far more educated than other Jordanians. They elected yet more educated leaders, which combined with their low unemployment suggests that an IAF government would value technical competence and avoid a "populist" economic program.

Recently collected data show that, within any manufacturing industry, vertically integrated firms tend to have larger, higher productivity plants, account for the bulk of sales, and also sell externally most of the inputs they produce. In a weak contracting environment characteristic of developing countries, vertically integrated firms are vulnerable to employee “spinouts”: managers of input divisions can start their own firms, making customized inputs formerly provided internally subject to hold-up and capturing the profits formerly made from external sales of generic inputs. This vulnerability is shown to lead to inefficiently low entry. Vertically integrated firms can fight back by hiring managers for their input divisions who are members of networks that informally sanction hold-ups or children who keep profits “in the family” even if they spin out. This is shown to predict the association of co-ethnic networks with high rates of entrepreneurship and the prominence of family-owned business groups in developing country manufacturing.

Client relationships create value, which employees may try to wrest from their employers by setting up their own firms.If when an employer and worker establish a relationship they cannot contract on the output and profits of the worker's prospective new firm, the employer counters by inducing the worker to sign a contract that prohibits him from competing or soliciting the current client in the event of termination of employment.The socially optimal level of entrepreneurship will nevertheless be achieved if clients, employers, and workers can renegotiate these restrictive employment contracts and make compensating transfers.If workers cannot finance transfers to employers, however, employers and workers will sign contracts that are too restrictive and produce too little entrepreneurship, and governments can increase welfare by limiting enforcement of these contracts.With or without liquidity constraints, locations where non-compete contracts are less enforced will attract more clients and have higher employment and output.

O papel das estruturas da autoridade burocrática para a potencialização do crescimento econômico tem sido uma preocupação sociológica desde as contribuições clássicas de Max Weber, de quase 100 anos atrás. Utilizando um conjunto de dados recente e original, foram examinadas as características das principais instituições econômicas estatais e os registros de crescimento em uma amostra com 35 países em desenvolvimento durante o período compreendido entre 1970 e 1990. A “Escala de Weberianismo” utilizada oferece uma medida simples do grau no qual essas instituições empregam recrutamento meritocrático e oferecem carreiras estruturadas com progressão funcional e gratificação de desempenho. Descobriu-se que essas características “weberianas” reforçam, significativamente, as perspectivas de crescimento econômico, mesmo quando controlamos os níveis iniciais de PIB per capita e capital humano. Os resultados indicam que essas características “weberianas” deveriam ser incluídas como um fator em modelos gerais de crescimento econômico. Eles também sugerem a necessidade de maior atenção, pelos policy makers, para a construção de burocracias aprimoradas; e de mais pesquisas, pelos cientistas sociais, sobre as variações em como as burocracias estatais se encontram organizadas.