This paper analyzes whether effort provision in entrepreneurial teams
depends on the size of the team, assuming that size determines the
strength of free-riding and peer pressure effects in entrepreneurial
teams. We provide a theoretical model and empirical analyses to explain
the joint effect of free-riding and peer pressure on effort in start-up
teams. We begin with an economic model by Kandel and Lazear in J Polit
Econ 100(4):801–817, (1992) and enrich it using insights from
entrepreneurship research. Based on our model, we first hypothesize that
with increasing team size in entrepreneurial teams, the efforts of the
individual team founders should follow an inverted U-shaped pattern.
Second, we argue that the peer pressure effect is stronger if team
members have stronger social ties, and thus we expect the
effort-maximizing team size to be larger in teams with stronger social
ties. Using a data set from 214 German start-up teams, we find that our
hypotheses are supported by the data.