CBR Briefing #59

Why entrepreneurs don’t need subsidies
Financial success is only part of what motivates small-business owners

A pie chart plotting entrepreneurs’ top motivations, with thirty-two-point-two percent having a good business idea and nineteen-point-five percent wanting to generate income. Another thirty-five-point three cited nonfinancial reasons, including enjoyment of the work, being their own boss, job security, working form home, and setting their own hours.

If more entrepreneurs are wealthy than poor, subsidies for small businesses would transfer resources from the poor to the wealthy.

  • Would small businesses grow faster if they weren’t cash strapped and burdened by government regulations? Some undoubtedly would; but for entrepreneurs starting a business largely for nonfinancial reasons, government subsidies could be regressive, benefiting the wealthy more than the poor, according to research by Chicago Booth’s Erik Hurst and Benjamin W. Pugsley at the Federal Reserve Bank of New York.
  • Past research by Hurst and Pugsley finds that a large share of US business owners were originally motivated by factors other than money—such as wanting flexible hours, or to be one’s own boss, or to pursue a passion (see chart).
  • The researchers used that insight to create a new model of the small-business sector. They find a positive correlation between small-business ownership and wealth, so that if more entrepreneurs are wealthy than poor, subsidies for small businesses would transfer resources from the poor to the wealthy.
  • The model also predicts that small businesses with largely nonfinancial motives will be concentrated in industries where companies don’t have to scale up, and where being small could be a competitive advantage.

Click here to download this briefing as a PDF.

More from Chicago Booth Review

Related Topics

More from Chicago Booth

Related Topics

Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.