I remember my economics…

In these days, when the fundamentals of financial economics are getting a public bashing by adacemics and laypeople alike, it is confiding to turn to those great works that cuts across disciplines and streams of though alike, and tells us something important.

For example, have a look at the Akerlof and Kranton paper on the economics of identity, which incorporates social identity to agent-principal models to investigate the consequences of when employees consider themselves insiders or outsiders. A simple yet beautiful economic model with implications for a HRM, entrepreneurship, feminism and other important topics. Citing Mahatma Ghandi and Jacob Mincer in the same paper is always nice

 After a long  silence I finally found my way back here again – I have been finishing my dissertation on “Entrepreneurial Exit” which will be defenced in May at the Stockholm School of Economics. The dissertation is published by The Economic Research Institute and can be bought in softcover there or downloaded ( for free as a pdf. file.

Ironically enough, the topic of my dissertation has attracted many questions from people in the recent months, given the sad state of the economy. A main finding in my research is that there is a rather weak, or more correctly speaking a non-linear relationship between economic profitability and entrepreneurial exit, with exit frequently occuring both among well-performning and poorly performing firms.

A practical conclusion of this is that while much effort and resources are spent by policy makers trying to the attractiveness of entrepreneurship as a career choice – for example by lowering the tax rate for new firms – there is comparatively little policy attention directed at the exit side of entrepreneurship.  One wonder why economic policy focus so little on stimulating the rapid exit of unprofitable firms and lowering the risk of (uneccessary) exit of profitable businesses due to (temporary) financial turmoil?

In the Swedish banking crisis during the early 1990s, many small businesses – even highly profitable ones – were forced to exit because of the sudden rigidity of credit terms which put a stranglehold on their liquidity. It is important for authorities not to let this happen again in times of financial turmoil.