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The right stuff? Personality and entrepreneurship

Author

Listed:
  • Barton H. Hamilton
  • Nicholas W. Papageorge
  • Nidhi Pande

Abstract

We construct a structural model of entry into self‐employment to evaluate the impact of policies supporting entrepreneurship. Previous work has recognized that workers may opt for self‐employment due to the nonpecuniary benefits of running a business and not necessarily because they are good at it. Other literature has examined how socio‐emotional skills, such as personality traits, affect selection into self‐employment. We link these two lines of inquiry. The model we estimate captures three factors that affect selection into self‐employment: credit constraints, relative earnings, and preferences. We incorporate personality traits by allowing them to affect sector‐specific earnings as well as preferences. The estimated model reveals that the personality traits that make entrepreneurship profitable are not always the same traits driving people to open a business. This has important consequences for entrepreneurship policies. For example, subsidies for small businesses do not attract talented‐but‐reluctant entrepreneurs, but instead attract individuals with personality traits associated with strong preferences for running a business and low‐quality business ideas.

Suggested Citation

  • Barton H. Hamilton & Nicholas W. Papageorge & Nidhi Pande, 2019. "The right stuff? Personality and entrepreneurship," Quantitative Economics, Econometric Society, vol. 10(2), pages 643-691, May.
    • Handle: RePEc:wly:quante:v:10:y:2019:i:2:p:643-691
    DOI: 10.3982/QE748
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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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