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Slipping the surly bonds: The value of autonomy in self-employment

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  • Croson, David C.
  • Minniti, Maria
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    Abstract

    This paper models the tradeoff between increased autonomy from self-employment and the generally higher income that traditional employment offers. While the demand for autonomy is a purely psychological construct, the economic tradeoffs involved in its achievement are eminently amenable to quantification and analytical modeling characteristic of economic analysis. We use this setup to offer a multifactor utility formulation formalizing the notion of an explicit, autonomy-based preference for self-employment. We propose such a formulation as a theoretically-defensible alternative to the classic (and also psychologically-based) overconfidence hypothesis in explaining why self-employment is chosen despite evidence that newly self-employed individuals earn less than comparable individuals who continue their current employment. Our model, founded on utility maximization by a rational individual, demonstrates not only that newly self-employed individuals are willing to accept lower earnings outcomes in exchange for psychic benefits from self-employment, but also that the structure of their optimal launch-timing decision guarantees that they will quit at a time such that their income will (at least initially) be reduced. We conclude with implications for the design of empirical instruments to quantify the relative importance of autonomy and income.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167487011000808
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Psychology.

    Volume (Year): 33 (2012)
    Issue (Month): 2 ()
    Pages: 355-365

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    Handle: RePEc:eee:joepsy:v:33:y:2012:i:2:p:355-365

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    Web page: http://www.elsevier.com/locate/joep

    Related research

    Keywords: Entrepreneurship; Autonomy; Utility; Mathematical modeling; Value; Freedom; Timing; Tradeoff; Self-employment; Quitting;

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    References

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    1. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
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      • Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618, October.
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    Citations

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    Cited by:
    1. Teemu Kautonen & Simon Down & Maria Minniti, 2014. "Ageing and entrepreneurial preferences," Small Business Economics, Springer, vol. 42(3), pages 579-594, March.
    2. Michael Wyrwich, 2013. "In the name of my parents: Entrepreneurship and the intergenerational transmission of values," Jena Economic Research Papers 2013-031, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
    3. Simoes, Nadia & Moreira, Sandrina B. & Crespo, Nuno, 2013. "Individual Determinants of Self-Employment Entry – What Do We Really Know?," MPRA Paper 48403, University Library of Munich, Germany.
    4. Cortés Aguilar Alexandra & Teresa Garcia-Muñoz & Ana I. Moro Egido, 2013. "Heterogeneous Self-employment and Subjective Well-Being. Evidence from Latin America," ThE Papers 13/05, Department of Economic Theory and Economic History of the University of Granada..
    5. Lechmann, Daniel S. J., 2013. "Can working conditions explain the return-to-entrepreneurship puzzle?," Discussion Papers 86, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    6. Aguilar, Alexandra Cortés & García Muñoz, Teresa M. & Moro-Egido, Ana I., 2013. "Heterogeneous self-employment and satisfaction in Latin America," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 44-61.

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