Advanced Search
MyIDEAS: Login

Drug Dealing and Legitimate Self-Employment

Contents:

Author Info

  • Fairlie, Robert

Abstract

Theoretical models of entrepreneurship posit that attitudes toward risk, entrepreneurial ability, and preferences for autonomy are central to the individual's decision between self-employment and wage/salary work. None of the studies in the rapidly growing empirical literature on entrepreneurship, however, have been able to test whether these factors are important determinants of self-employment. I provide indirect evidence on this hypothesis by examining the relationship between drug dealing and legitimate self-employment. A review of ethnographic studies in the criminology literature indicates that drug dealing may represent a useful proxy for low risk aversion, entrepreneurial ability, and a preference for autonomy.            The 1980 wave of the National Longitudinal Survey of Youth (NLSY) contained a special section on participation in illegal activities, including questions on selling marijuana and other "hard" drugs. I use the answers to these questions and data from subsequent years of the NLSY to examine the relationship between drug dealing as a youth and legitimate self-employment in later years. Using various definitions of drug dealing and specifications of the econometric model, I find that drug dealers are 11 to 21 percent more likely to choose self-employment than non drug dealers, all else equal. I also find that drug dealers who sold more frequently, used drugs less frequently, or reported receiving income from drug dealing are more likely to choose self-employment than other drug dealers. After ruling out a few alternative explanations, I interpret these results as providing indirect evidence that risk aversion, entrepreneurial ability, and preferences for autonomy are important determinants of self-employment. Theoretical models of entrepreneurship posit that attitudes toward risk, entrepreneurial ability, and preferences for autonomy are central to the individual's decision between self-employment and wage/salary work. None of the studies in the rapidly growing empirical literature on entrepreneurship, however, have been able to test whether these factors are important determinants of self-employment. I provide indirect evidence on this hypothesis by examining the relationship between drug dealing and legitimate self-employment. A review of ethnographic studies in the criminology literature indicates that drug dealing may represent a useful proxy for low risk aversion, entrepreneurial ability, and a preference for autonomy.            The 1980 wave of the National Longitudinal Survey of Youth (NLSY) contained a special section on participation in illegal activities, including questions on selling marijuana and other "hard" drugs. I use the answers to these questions and data from subsequent years of the NLSY to examine the relationship between drug dealing as a youth and legitimate self-employment in later years. Using various definitions of drug dealing and specifications of the econometric model, I find that drug dealers are 11 to 21 percent more likely to choose self-employment than non drug dealers, all else equal. I also find that drug dealers who sold more frequently, used drugs less frequently, or reported receiving income from drug dealing are more likely to choose self-employment than other drug dealers. After ruling out a few alternative explanations, I interpret these results as providing indirect evidence that risk aversion, entrepreneurial ability, and preferences for autonomy are important determinants of self-employment.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.escholarship.org/uc/item/3p38k7c8.pdf;origin=repeccitec
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt3p38k7c8.

as in new window
Length:
Date of creation: 15 May 2014
Date of revision:
Handle: RePEc:cdl:ucscec:qt3p38k7c8

Contact details of provider:
Postal: Santa Cruz, CA 95064
Phone: (831) 459-2743
Fax: (831) 459-5077
Email:
Web page: http://www.escholarship.org/repec/ucscecon/
More information through EDIRC

Related research

Keywords: Business; entrepreneurship; crime; drug dealing; business ownership; self-employment; labor;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Devine, Theresa J, 1994. "Changes in Wage-and-Salary Returns to Skill and the Recent Rise in Female Self-Employment," American Economic Review, American Economic Association, vol. 84(2), pages 108-13, May.
  2. Grogger, Jeffrey, 1995. "The Effect of Arrests on the Employment and Earnings of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 51-71, February.
  3. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  4. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc.
  5. George J. Borjas & Stephen G. Bronars, 1989. "Consumer Discrimination and Self-Employment," NBER Working Papers 2627, National Bureau of Economic Research, Inc.
  6. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  7. Richard Freeman, 1987. "The relation of criminal activity to black youth employment," The Review of Black Political Economy, Springer, vol. 16(1), pages 99-107, June.
  8. Moore, Robert L, 1983. "Employer Discrimination: Evidence from Self-Employed Workers," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 496-501, August.
  9. Robert W. Fairlie, 1999. "Drug Dealing and Legitimate Self-Employment," JCPR Working Papers 88, Northwestern University/University of Chicago Joint Center for Poverty Research.
  10. Grogger, Jeff, 1992. "Arrests, Persistent Youth Joblessness, and Black/White Employment Differentials," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 100-106, February.
  11. Fairlie, Robert, 2014. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt49c4n0fg, Department of Economics, UC Santa Cruz.
  12. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  13. 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.
  14. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  15. Holtz-Eakin, D. & Joulfaian, D. & Rosen, H.S., 1992. "Entrepreneurial Decisions and Liquidity Constraints," Papers 129, Princeton, Department of Economics - Financial Research Center.
  16. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
  17. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
  18. Nagin, Daniel & Waldfogel, Joel, 1998. "The Effect of Conviction on Income Through the Life Cycle," International Review of Law and Economics, Elsevier, vol. 18(1), pages 25-40, March.
  19. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August.
  20. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-95, October.
  21. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  22. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
  23. Lott, John R, Jr, 1992. "An Attempt at Measuring the Total Monetary Penalty from Drug Convictions: The Importance of an Individual's Reputation," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 159-87, January.
  24. Richard B. Freeman, 1994. "Crime and the Job Market," NBER Working Papers 4910, National Bureau of Economic Research, Inc.
  25. Samuel Myers, 1989. "Nea presidential address: Political economy, race, and morals," The Review of Black Political Economy, Springer, vol. 18(1), pages 5-15, June.
  26. Robert W. Fairlie & Bruce D. Meyer, 1996. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 757-793.
  27. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  28. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdl:ucscec:qt3p38k7c8. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.