Minority Entrepreneurship: Does It Pay to Discriminate?

This paper proposes a model that, although among the first to explain minority entrepreneurship in a general equilibrium framework, is simple enough to yield closed-form solutions. Minorities may face higher entry costs and their distribution of management skills may be less advantageous. A novel result is that not only the absolute but also the relative entry costs and the relative distribution of skills, between minorities and non-minorities, matter for firm-entry decisions. As an application, the proposed model is used to explain the recent increment in entrepreneurship among African Americans in high-entry-barrier sectors.