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

  • Croson, David C.
  • Minniti, Maria
Registered author(s):

    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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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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    6. Cooper, Arnold C. & Woo, Carolyn Y. & Dunkelberg, William C., 1988. "Entrepreneurs' perceived chances for success," Journal of Business Venturing, Elsevier, vol. 3(2), pages 97-108.
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    15. Shane, Scott & Kolvereid, Lars & Westhead, Paul, 1991. "An exploratory examination of the reasons leading to new firm formation across country and gender," Journal of Business Venturing, Elsevier, vol. 6(6), pages 431-446, November.
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