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

David Croson and Maria Minniti

Journal of Economic Psychology, 2012, vol. 33, issue 2, 355-365

Abstract: 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.

Keywords: Entrepreneurship; Autonomy; Utility; Mathematical modeling; Value; Freedom; Timing; Tradeoff; Self-employment; Quitting (search for similar items in EconPapers)
JEL-codes: C61 D14 L26 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:33:y:2012:i:2:p:355-365

DOI: 10.1016/j.joep.2011.05.001

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