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Risk, Balanced Skills and Entrepreneurship

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Author Info

  • Hsieh, Chihmao

    ()
    (University of Amsterdam)

  • Parker, Simon C.

    ()
    (Western University, Canada)

  • van Praag, Mirjam C.

    ()
    (Copenhagen Business School)

Abstract

This paper proposes that risk aversion encourages individuals to invest in balanced skill profiles, making them more likely to become entrepreneurs. By not having taken this possible linkage into account, previous research has underestimated the impacts both of risk aversion and balanced skills on the likelihood individuals choose entrepreneurship. Data on Dutch university graduates provides evidence which supports this contention. It thereby raises the possibility that even risk-averse people might be suited to entrepreneurship; and it may also help explain why prior research has generated mixed evidence about the effects of risk aversion on selection into entrepreneurship.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6200.

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Length: 29 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6200

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Keywords: entrepreneurship; jack-of-all-trades; risk; human capital; occupational choice;

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References

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  1. Hellmann, Thomas F., 2002. "When Do Employees Become Entrepreneurs?," Research Papers, Stanford University, Graduate School of Business 1770, Stanford University, Graduate School of Business.
  2. Åstebro, Thomas & Thompson, Peter, 2011. "Entrepreneurs, Jacks of all trades or Hobos?," Research Policy, Elsevier, Elsevier, vol. 40(5), pages 637-649, June.
  3. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 537-79, May.
  4. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2012. "The Intergenerational Transmission of Risk and Trust Attitudes," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 645-677.
  5. Parker, Simon C., 2005. "Entrepreneurship Among Married Couples in the United States: A Simultaneous Probit Approach," IZA Discussion Papers 1712, Institute for the Study of Labor (IZA).
  6. Hartog, Joop & van Praag, Mirjam C. & van der Sluis, Justin, 2008. "If You Are So Smart, Why Aren't You an Entrepreneur? Returns to Cognitive and Social Ability: Entrepreneurs versus Employees," IZA Discussion Papers 3648, Institute for the Study of Labor (IZA).
  7. Silva, Olmo, 2007. "The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill?," Economics Letters, Elsevier, Elsevier, vol. 97(2), pages 118-123, November.
  8. Brown, Sarah & Dietrich, Michael & Ortiz-Nuñez, Aurora & Taylor, Karl, 2011. "Self-employment and attitudes towards risk: Timing and unobserved heterogeneity," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(3), pages 425-433, June.
  9. Ramana Nanda & Jesper B. Sørensen, 2010. "Workplace Peers and Entrepreneurship," Management Science, INFORMS, INFORMS, vol. 56(7), pages 1116-1126, July.
  10. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 48(1), pages 29-36, May.
  11. Dolton, Peter J & Makepeace, G H, 1990. "Self Employment among Graduates," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 42(1), pages 35-53, January.
  12. 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, University of Chicago Press, vol. 87(4), pages 719-48, August.
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Cited by:
  1. Lechmann, Daniel S. J. & Schnabel, Claus, 2011. "Are the self-employed really jacks-of-all-trades? Testing the assumptions and implications of Lazear's theory of entrepreneurship with German data," IWQW Discussion Paper Series 11/2011, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).

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