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Self-employment and attitudes towards risk: Timing and unobserved heterogeneity

  • Brown, Sarah
  • Dietrich, Michael
  • Ortiz-Nuñez, Aurora
  • Taylor, Karl

We explore the relationship between self-employment and attitudes towards financial risk using individual level data drawn from the US Panel Study of Income Dynamics (PSID), which includes measures of individuals' attitudes towards hypothetical gambles allowing us to explore the implications of interpersonal differences in risk attitudes for the probability of self-employment. Our empirical findings suggest that willingness to take financial risk is positively associated with self-employment. By exploiting the panel aspect of the PSID, we find evidence, whilst controlling for unobserved individual heterogeneity, consistent with a causal relationship between attitudes towards risk and self-employment with attitudes towards risk measured prior to becoming self-employed having a statistically significant positive influence on the probability of future self-employment.

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

Volume (Year): 32 (2011)
Issue (Month): 3 (June)
Pages: 425-433

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Handle: RePEc:eee:joepsy:v:32:y:2011:i:3:p:425-433
Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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  1. Fairlie, Robert, 2014. "Drug Dealing and Legitimate Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt3p38k7c8, Department of Economics, UC Santa Cruz.
  2. Ekelund, Jesper & Johansson, Edvard & Jarvelin, Marjo-Riitta & Lichtermann, Dirk, 2005. "Self-employment and risk aversion--evidence from psychological test data," Labour Economics, Elsevier, vol. 12(5), pages 649-659, October.
  3. Parker, Simon C., 2008. "Entrepreneurship among married couples in the United States: A simultaneous probit approach," Labour Economics, Elsevier, vol. 15(3), pages 459-481, June.
  4. Dave, Dhaval & Saffer, Henry, 2008. "Alcohol demand and risk preference," Journal of Economic Psychology, Elsevier, vol. 29(6), pages 810-831, December.
  5. Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2009. "Risk Preferences in the PSID: Individual Imputations and Family Covariation," American Economic Review, American Economic Association, vol. 99(2), pages 363-68, May.
  6. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
  7. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  8. Masclet, David & Colombier, Nathalie & Denant-Boemont, Laurent & Lohéac, Youenn, 2009. "Group and individual risk preferences: A lottery-choice experiment with self-employed and salaried workers," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 470-484, June.
  9. Sarah Brown & Lisa Farrell & Mark N. Harris & John G. Sessions, 2002. "Risk Preference And Employment Contract Type," Department of Economics - Working Papers Series 845, The University of Melbourne.
  10. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
  11. van Praag, C M & Cramer, J S, 2001. "The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion," Economica, London School of Economics and Political Science, vol. 68(269), pages 45-62, February.
  12. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
  13. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
  14. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
  15. repec:cup:cbooks:9780521828130 is not listed on IDEAS
  16. Stephen Martin & Peter C. Smith, 2003. "Using panel methods to model waiting times for National Health Service surgery," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 166(3), pages 369-387.
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