Ability, Stigma, and Entrepreneurship

This paper sheds light on the relationship among the quality of entrepreneurial entry, the perception of odds of success or failure, and cultural attitudes associated with success or failure by leveraging differing national conditions that govern entrepreneurial choices. We focus on differences in perceived stigma associated with entrepreneurial failure. We set up a theoretical model designed to capture the notion that the population of entrepreneurs in any economy develops through time governed by a hurdle process with feedback. We argue that the height of these hurdles is determined by institutional and cognitive factors. Variation in these factors amongst countries leads to variation in the rate and nature of entrepreneurship and associated innovation. We illustrate the theory using agent-based simulation techniques. We find that the higher the perceived stigma associated with entrepreneurial failure in a nation, the lower average quality of the entrepreneurial pool through adverse selection. Conversel...