Slipping the surly bonds: The value of autonomy in self-employment
AbstractThis 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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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Psychology.
Volume (Year): 33 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/joep
Entrepreneurship; Autonomy; Utility; Mathematical modeling; Value; Freedom; Timing; Tradeoff; Self-employment; Quitting;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
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