Cascading ripples: Contagion effects of entrepreneurial activity on self‐employment attitudes and choices in regional cohorts

• Published date: 01 December 2018
• Author: Boris N. Nikolaev,Matthew S. Wood
• Date: 01 December 2018
• DOI: http://doi.org/10.1002/sej.1286

RESEARCH ARTICLE

Cascading ripples: Contagion effects of

entrepreneurial activity on self-employment

attitudes and choices in regional cohorts

Boris N. Nikolaev

1

| Matthew S. Wood

2

1

Department of Entrepreneurship, Hankamer

School of Business, Baylor University, Waco,

Texas

2

Department of Entrepreneurship, Hankamer

School of Business, Baylor University, Waco,

Texas

Correspondence

Boris N. Nikolaev, Department of

Entrepreneurship, Hankamer School of

Business, Baylor University, One Bear Place,

Waco, TX 76798.

Email: boris_nikolaev@baylor.edu

Research Summary: We introduce a contagion model of self-

employment that relates regional cohort self-employment to indi-

viduals’preferences for and decisions toward engaging in entre-

preneurial action. We test the predictions of our model via

evidence from two studies. Study 1 uses cross-sectional data from

the U.S. General Social Survey (GSS) and examines the correlation

between regional cohort self-employment and individuals’atti-

tudes for self-employment. Study 2 uses longitudinal data from

the Household, Income, and Labour Dynamics in Australia (HILDA)

survey and examines the likelihood of transitioning into self-

employment as a function of regional cohort entrepreneurship.

Our results provide evidence that individuals who belong to

regional cohorts with a greater proportion of entrepreneurs are

more likely to express favorable attitudes toward self-employment

and to enter into self-employment.

Managerial Summary: A large literature in the social sciences indi-

cates that people’s preferences and actions are influenced by the

behaviors of those around them. We find this is true when it

comes to entrepreneurship. Specifically, we document that people

who live in regions with higher proportions of entrepreneurs are

more likely to express favorable attitudes toward self-employment

and are more likely to start new business ventures. This suggests

that people embedded in environments where there is a lot of

entrepreneurial activity are more likely to “catch the bug”of self-

employment, as they use already-established entrepreneurs in the

region as a roadmap for their own thinking and action.

KEYWORDS

self-employment, social contagion, entrepreneurship culture,

social comparison, regional cohorts

Received: 27 January 2017 Revised: 13 November 2017 Accepted: 15 November 2017 Published on: 1 March 2018

DOI: 10.1002/sej.1286

Copyright © 2017 Strategic Management Society

Strategic Entrepreneurship Journal. 2018;12:455–481. wileyonlinelibrary.com/journal/sej 455

1|INTRODUCTION

There is an old saying in Western culture, “you become who you surround yourself with.”The principle is that there

is a contagion effect where over time people adopt the behaviors of those around them. This is provocative when it

comes to entrepreneurship because it suggests that people embedded in environments where there is a lot of entre-

preneurial activity might “catch the bug”of self-employment as they observe the actions and outcomes realized by

other people in their community who engage in entrepreneurship. Indeed, prior research has documented spatial

variation in entrepreneurship (Andersson & Koster, 2011) and considered that clusters of entrepreneurial activity

emerge via a “feedback effect where localities with a high density of established entrepreneurs are more likely to

breed new entrepreneurs”(Andersson & Larsson, 2016, p. 39). This is consistent with research that conceptualizes

the environment as a source of clustering (Minniti, 2005) via transmission of entrepreneurial actions and outcomes

through peer networks (Qin & Estrin, 2015). It also parallels anecdotal evidence that this dynamic occurs in commu-

nities such as California’s Silicon Valley or North Carolina’s Research Triangle that experience disproportionally high

numbers of self-employment events.

While this line of investigation has proven immensely insightful, it leaves open the question of what occurs in

larger geographic areas where entrepreneurial activity is more normally distributed and one cannot directly “observe

someone else’s behavior and the consequences of it”(Minniti, 2005, p. 5). That is, we lack theoretical explanations

and empirical evidence regarding potential effects of entrepreneurial activity writ large on individuals’self-

employment attitudes and choices when that activity occurs in spatial areas that extend beyond observed behavior

and personal relationships. In fact, a common assumption for the persistence and path dependence of entrepreneur-

ial clusters over time has been the existence of regional “entrepreneurship culture”(Andersson & Koster, 2011;

Fritsch & Wyrwich, 2014), which can influence people’s attitudes toward entrepreneurship; but so far, the evidence

has been largely inferential and implicit.

Prior research on spatial variation in entrepreneurship has also treated entrepreneurs within specified border-

lines as a homogenous group, and this represents an artificial assumption given that entrepreneurs are quite hetero-

geneous along several dimensions (e.g., Delmar & Davidsson, 2000; Hundley, 2000; Parker, 2004). We embrace this

heterogeneity by considering the presence of cohorts (same gender, similar age, and so on) among agglomerations

of entrepreneurs. This is important given that research on referent comparison indicates that people devote more

attention to the activities of those who are most similar to them (Festinger, 1954). Therefore, it is reasonable to

expect that the heterogeneity of regional entrepreneurship will play a role, as those considering self-employment

are likely to pay more attention to the actions of those in their cohort and less attention to those who are not. This

logic, then, raises the question of whether it is possible that a reinforcing effect exists such that individuals are more

likely to express favorable attitudes toward self-employment and enter into self-employment as a function of

regional cohort entrepreneurship.

The purpose of this study is to investigate the existence of such dynamics via the introduction of a contagion

model of self-employment. The notion of contagion flows from a sizable literature in psychology, sociology, and

economics that describes a phenomenon where people’s attitudes and choices are influenced by the attitudes and

actions of others (Hoff & Stiglitz, 2016). Specifically, as more people act in a given direction, others are more likely

to “hop on the bandwagon”and act in ways that do not require personal connections such that contagion can be

rather automatic and implicit (Frith & Frith, 2012; Happé, Cook, & Bird, 2017). We use these insights to derive pre-

dictions about the degree to which individual attitudes toward and actual entry into self-employment are a function

of the proportion of people in their regional cohort engaged in entrepreneurship. We extend this by further building

on cohort delineations to advance that these relationships are stronger for males, younger people, and those at the

tails of the income distribution.

We test our predictions via two separate studies based on cross-sectional and panel data derived from two

nationally representative samples, one in the United States and one in Australia. Using these datasets concomitantly

provides a more compelling picture of the phenomena by allowing us to analyze how regional cohort characteristics

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