Trust or distrust: entrepreneurs vs. self-employed

Illoong Kwon () and Kitae Sohn ()
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Illoong Kwon: Seoul National University
Kitae Sohn: County of Los Angeles

Small Business Economics, 2021, vol. 56, issue 4, No 15, 1553-1570

Abstract: Abstract Trust and entrepreneurship are important determinants of economic development. The two, however, have been discussed separately and crudely defined. This paper distinguishes between trust and distrust and constructs a theoretical framework to understand their relations with (innovative) entrepreneurship and (routine) self-employment. The framework shows that entrepreneurs, who make an unverifiable investment, can rely on low distrust and high trust to overcome the hold-up risk. In contrast, the self-employed, who make a verifiable investment, can rely on high distrust and high trust to monitor and verify the terms of the contract. This paper also empirically analyzes the World Values Survey by relating distrust and trust to the choice of employment type (among entrepreneurship, self-employment, paid employment, or unemployment) in multinomial logit models. The results are largely consistent with the predictions of the theoretical framework.

Keywords: Trust; Distrust; Entrepreneurship; Self-employed; Risk (search for similar items in EconPapers)
JEL-codes: D23 D91 L26 M13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11187-019-00278-y

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