Is Bill Gates the Exception or the Norm - Role of Human Capital in Occupation Choice in IT Industries

While innovation is the hallmark of the information technology (IT) industry, very little research has studied individuals motivation toinnovate either as scientists in research and development (R&D) departments of established firms, or as entrepreneurs startingtheir own ventures. In this research, we develop a game theoretic model based on theories of human capital and information asymmetry to explore how individuals’ skill levels impact their decision on whether to work for established companies or become entrepreneurs. Our results suggest that if information about individuals’ skills is private information, then highly skilled individuals choose to become entrepreneurs. In the presence of imperfect signaling, employees with very high skills or very low skills tend to work in established companies, and those with intermediate skills become entrepreneurs. We also find that entrepreneurs, on average, have higher skill levels than scientists, and increased technology risks raises the mass of scientists in the market.