A Behavioral Model of Entrepreneurial Supply

A BEHAVIORAL MODEL OF ENTREPRENEURIAL SUPPLY One of the more persistent debates among researchers of entrepreneurship is between the "Trait" and "Contingency" schools. The first postulates that entrepreneurs share a common type of personality which "explains" their behavior. David McClelland is probably the best-known representative of this long-established school, which continues to have many supporters. Recent research on the subject, however, appears to be moving away from the concept of entrepreneurial personality and toward a contingency view of entrepreneurship as a response to particular situations. According to this second view, the personality traits required of entrepreneurs tend to vary as external conditions change. Researchers at the Harvard Business School are among the leding proponents of this second view. Another advocate of this newer approach is Peter Drucker, who claims that "what all the successful entrepreneurs have in common is not a certain kind of personality, but a commitment to the systematic practice of innovation. One question which arises in relation to the situational approach to entrepreneurship is that of the type of environment (or contingency) which is most likely to give rise to the entrepreneurial response. According to Drucker, almost every situation seems to offer its own inducement for innovative responses. For example, our current economy, with its declining industrial base, seems to have opened opportunities for entrepreneurial response in other, more promising sectors, such as health and education. Are Drucker's conclusions supported by statistics? Drucker himself relies heavily on anecdotal evidence. In this article an objective test is proposed in which a simple model is used to measure the extent to which particular environmental factors elicit or hinder the entrepreneurial response. The shortcomings of the econometric technique in measuring predominantly behavioral phenomena have been well documented. The authors propose to escape some of these limitations by using an economic model driven by a behavioral theory. A synthesis of this type provides the theoretical under-pinnings of the new field of behavioral economics. It seems especially suitable for research on factors influencing entrepreneurship, as various practical difficulties have restricted the amount of large-scale empirical research on this subject. In more precise terms, the authors propose to use two closely-related behavioral explanations of entrepreneurial supply to identify economic aggregates (in the form of readily available macro-economic variables) which may help explain changes in the level of entrepreneurship. The particular behavioral hypothesis chosen for this task--the "push" and "pull" hypotheses--are explained in part two. The components of the model are described in part three, and results obtained from its application are presented in part four. These results appear to lend indirect support to Drucker's optimistic conclusion. The last two parts of the article consist of a discussion of the findings and a summary and conclusion. THE "PUSH" AND "PULL" THEORIES OF ENTREPRENEURSHIP Empirical research on entrepreneurial motivation has produced two broad, and to some extent competing, hypotheses. These are popularly known as the "push" and "pull" theories of entrepreneurial motivation. Proponents of the "push" theory argue that people are pushed into entrepreneurship by negative situational factors such as dissatisfaction with existing employment, loss of employment, and career setback. These negative events, they contend, tend to activate latent entrepreneurial talent and push individuals into business activities. Psychological evidence supporting the "push" theory includes, in addition to direct studies of the relationship between job satisfaction and the decision to become an entrepreneur, studies which variously describe entrepreneurs as "misfits," "rejects from society," and "displaced individuals. …