This paper focuses on entry of small firms in the manufacturing industries. It is argued that the exit option can be viewed as an insurance against risks of failure, increasing the likelihood of entry in an uncertain environment; the result is implicit in recent stochastic models of competition and entry decision under uncertainty. A regression model of industry birth rates in the Italian manufacturing industries provides empirical evidence on the impact of factors determining the decision to enter and the supply of new entrepreneurs. In our estimates, yearly entry rates are found to decrease with entry costs and barriers and to increase with market growth, expected growth of small firms, risks of failure and an index of spatial concentration of activities.
preneur with an insurance against unfavourable outcomes, turning risky undertakings into convenient ones.
Some of the theoretical suggestions reviewed in Section I are embodied in a regression model of entry rates. In Section II we outline the model and provide details on data and variables. In Section III we discuss the regression results on entry of small firms in the manufacturing industry during the period 1978--83, in the Piemonte region. Section IV contains conclusions and a summary of the main findings.