Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27595
Authors: 
Müller, Bettina
Year of Publication: 
2008
Series/Report no.: 
ZEW Discussion Papers 08-112
Abstract: 
In this paper I analyse how individuals match for for the purpose of setting up a new firm. As a theoretical basis I use the O-ring theory introduced by Kremer (1993) and applied to new firms by Fabel (2004). The O-ring theory predicts that individuals segregate between firms according to their level of ability. Further, the theory implies that a higher average ability level within firms is positively related to both the number of individuals and capital per head. Using a rich employer-employee data set on the whole population of Danish firms founded in 1998 most of the predictions of the O-ring theory are rejected. I find that individuals do not match with individuals with the same level of ability. Furthermore, ability and firm size turn out to be negatively correlated. There is only some support for the hypothesis concerning the positive relationship between ability and capital per head.
Subjects: 
Entrepreneurship
O-Ring Theory
Theory Test
JEL: 
M13
L26
D23
Document Type: 
Working Paper

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