Revealing Entrepreneurial Talent

A society's allocation of working time to entrepreneurial, organizational and learning activities is the main factor behind technical change and economic growth. Building on Lucas (1978) and Kihlstrom and Laffont (1979), in this paper I offer evidence that the amount of working time spent by small business owners in entrepreneurial activities affects the performance of the business and reveals their entrepreneurial talent. The intuition is that it is reasonable to allocate more of our time to those activities where we realize we are more productive. As actual consumption choices reveal consumer preferences, the varying entrepreneurial content of the activities performed is a signal of an individual’s ability as entrepreneur. The results obtained suggest that the allocation of working time by small business owners: (a) throws light on their behavioral patterns; (b) is related to the owner’s human capital and to firm size; and (c) has a significant correlation with business performance. The main finding of my analysis, confirming previous studies on this topic, is that education is an important part of entrepreneurial human capital. Moreover, the latter is the main factor that can sustain small firms' competitiveness in a globalizing economy. Theme: Time Allocation, Work Behavior and Employment Determination