Sorting into Entrepreneurial Teams

Abstract

This paper studies how entrepreneurs sort into founding teams and how team composition shapes the equilibrium distribution of firms. We develop a theory of career choice and team formation in which skill complementarities make team entrepreneurship attractive for agents with unbalanced skill profiles, while talent similarity makes teaming preferable to other outside options. Using matched employer-employee and balance-sheet data from Portugal, we show that teams combining similar talent with diverse specializations create larger, more productive, and longer-lived firms. We also document a bias in meetings toward similarly-skilled founders and calibrate the model to match this evidence. Meeting bias lowers average wages and output by 12% and 13% respectively by distributing activity towards a higher number of less productive firms, while search frictions per se reduce wages and aggregate output by 15% and 13% respectively by preventing highly diverse but specialized individuals from forming successful teams. Joint paper with Edoardo Maria Acabbi, Andrea Alati and Luca Mazzone.