Economic Inequality among Entrepreneurs

Purpose - Drawing from social psychology and economics, I propose several mechanisms that may affect ownership stakes among entrepreneurs, including norms of distributive justice, negotiation constraints, and network constraints. The processes are explored empirically for a representative dataset of entrepreneurial teams. Methodology/Approach - Between 1998 and 2000, entrepreneurial teams were sampled from the U.S. population for the Panel Study of Entrepreneurial Dynamics. I analyze the distribution of ownership stakes at both the individual and group levels. Findings - The results suggest that principles of macrojustice, affecting the distribution of resources in teams as a whole, deviate considerably from principles of microjustice, affecting the resources received by individual entrepreneurs. While aggregate inequality increases in teams that have a diverse set of members, the effect is not reducible to discrimination on the basis of individual status characteristics. Instead, the relational demography of teams - characterized in terms of the degree of closeness in network ties and homogeneity in demographic attributes - serves as a uniquely social predictor of between-group variation in economic inequality. Originality/Value of the paper - Empirical research on inequality has paid little attention to the process of group exchange in organizational start-ups, where entrepreneurs pool resources and skills in return for uncertain or indirect payoffs. This paper offers both theoretical frameworks and empirical analyses to shed light on economic inequality among entrepreneurs.

Duke Scholars

Author Martin Ruef Sociology