The Value of Entrepreneurial Failures: Experimentation and Career Concerns

We study career paths in and out of entrepreneurship. We assume that entrepreneurs have more freedom than workers over their own task allo cation, and therefore can experiment: they can work on tasks that are likely to fail but provide valuable learning ab out future task allocation. Entrepreneurial failures are rewarded by the lab or market when the entrepreneur experimented. The amount of experimentation occurring within firms determines the amount of experimentation done by entrepreneurs, the treatment of entrepreneurial failures by the lab or market, and the probability of entrepreneurial success following an entrepreneurial failure. We show that there are two regimes, one where entrepreneurial failures are rewarded by the labor market (corresponding to the empirical evidence available for the US) and the other where entrepreneurial failures are punished by the lab or market (corresp onding to the empirical evidence available for continental Europe)