Abstract

This study investigates how fear of failure moderates the effects of the cost of business entry and the cost of insolvency on individuals’ probabilities to engage in entrepreneurship in general and in entrepreneurship with high growth ambitions. The latter subgroup of entrepreneurs is of particular interest because of the high impact it has in terms of job creation and it is not clear whether policies, which stimulate small scale entrepreneurship necessarily have the same effect on high growth entrepreneurship.

Building on an occupational choice model, I assume individuals to decide between wage employment and entrepreneurial entry based on the expected utility associated with these two options. Any reduction in regulatory costs increases the number of entrepreneurial projects which are feasible in terms of expected utility for the potential entrepreneur. Assuming that fear of failure can be used as a proxy for individual risk aversion I argue that this increase in the number of feasible projects is larger for individuals without fear of failure (i.e., individuals with lower levels of risk aversion). The increase in in entry probability is thus larger for individuals who indicate no fear of failure.

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