P.D. Koellinger, J.N. Mell, I. Pohl, C. Roessler, T. Treffers

Self-Employed but Looking: A Labor Market Experiment



We examine whether having previously been self-employed is a negative signal on the job market. In a UK field experiment where two applications of otherwise equally qualified individuals were sent out in response to the same vacancies in human resource management, we find that entrepreneurs systematically receive fewer responses than non-entrepreneurs. Empirical studies that treat market wages as the opportunity cost of remaining self-employed are therefore likely to overestimate alternative earnings to entrepreneurship.

  C. Roessler

On Distance Metrics in Location Problems

Economic Inquiry
51 (1), 1087-1099.


A product space metric reflects the extent to which consumers will tolerate a mismatch in one attribute of a good if they are well-matched in another. Thus, it expresses the complementarity of product attributes. Different metrics lead to different geometries in multi-dimensional space, which matters for optimal product positioning. As an illustration, I consider how a planner should design two public goods (of which any individual demands at most one) in order to best serve diverse needs. The planner must minimize overlap in the populations the goods serve, since the varieties are substitutes and benefits are wasted in appealing to the same individual with two offerings. The degree of attribute complementarity generally affects whether a given menu is an improvement over another (according to an extension of the Pareto criterion). There is, however, a policy that guarantees improvement: to distance the goods proportionately in every attribute. Firms have a similar incentive to minimize competition by targeting non-overlapping customer bases. This paper shows that the direction of product differentiation is important.

  C. Roessler, P.D. Koellinger

Entrepreneurship and Organization Design

European Economic Review
56 (4), 888-902


We model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building efficient organizations and offering potentially well-paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs. This result may help explain the empirically low returns to entrepreneurship.

  C. Roessler

A Limit to Price-Increasing Competition

Journal of Mathematical Economics
48 (2), 65-76


Differentiated entry may cause an incumbent firm to increase its price if the entering brand attracts price-sensitive consumers. The paper generalizes from the known cases with one- and two-dimensional products, showing for a finite number of attributes that there is scope for price-increasing competition, depending on the entrant's product positioning. The extension is critical because it leads to a reversal that has not been considered. The highest possible duopoly price converges to the monopoly price as dimensionality increases. Intuitively, when the product is more complex, tastes in the intersection of two brand markets (at any prices) are more specific and less frequent. This thinning of the fringe diminishes the effect of competitive entry.

  F. Menezes, C. Roessler

Good and Bad Consistency in Regulatory Decisions

Economic Record
86 (275), 504-516


We examine sources of consistent regulatory decisions in a model where regulators respond to mixed incentives, including career concerns. In the reference case, regulators act as "public servants" who strive to make the socially optimal decision, given limited information and the opportunity to observe the prior decision of another regulator. The addition of career concerns, such as a desire to avoid controversy or to implement a future employers preferred policy, tends to reduce the degree of differentiation in sequentially taken decisions, hence increasing consistency. Thus, it is possible to observe that the self-interested career concerns of regulators give rise to consistency in regulatory decision-making. This type of consistency might lead to substantial deviations from optimal regulatory policies.