Entrepreneurial School Dropouts: A Model on Signalling, Education and Entrepreneurship

Jens Fredrik Baumgarten Skogstrøm

Memo 10/2012


I present a theory on the relationship between educational choice and entrepreneurship in a labour market with asymmetric information. The model shows that, in a labour market where education is used as a signalling device, an imperfect relationship between productivity in education and in the labour market can lead to an equilibrium where a fraction of the high-ability individuals choose to quit school and become entrepreneurs. Using a comprehensive set of Norwegian register data, I find that this is prediction is confirmed empirically: Individuals combining low education with high ability have the highest entrepreneurship rates in the population.




Published June 23, 2014 10:18 AM - Last modified Jan. 30, 2019 7:55 AM