Self-Employment Dynamics and the Returns to Entrepreneurship

Eleanor Dillon and Christopher T. Stanton

No 23168, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Small business owners and others in self-employment have the option to transition to paid work. If there is initial uncertainty about entrepreneurial earnings, this option increases the expected lifetime value of self-employment relative to pay in a single year. This paper first documents that moves between paid work and self-employment are common and consistent with experimentation to learn about earnings. This pattern motivates estimating the expected returns to entrepreneurship within a dynamic lifecycle model that allows for non-random selection and gradual learning about the entrepreneurial earnings process. The model accurately fits entry patterns into self-employment by age. The option value of returning to paid work is found to constitute a substantial portion of the monetary value of entrepreneurship. The model is then used to evaluate policies that change incentives for entry into self-employment.

JEL-codes: J24 J31 J62 L26 M50 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-ent, nep-hrm, nep-lma and nep-sbm
Note: AP CF LS PE PR
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Citations: View citations in EconPapers (22)

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Working Paper: Self-Employment Dynamics and the Returns to Entrepreneurship (2018)
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