Self-Employment Dynamics and the Returns to Entrepreneurship

Eleanor Dillon and Christopher Stanton
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Christopher Stanton: Harvard University

No 1261, 2018 Meeting Papers from Society for Economic Dynamics

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 rst documents that moves between paid work and self-employment are common and consistent with experi- mentation 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 ts 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.

Date: 2018
New Economics Papers: this item is included in nep-dge, nep-ent and nep-sbm
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Citations: View citations in EconPapers (4)

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Working Paper: Self-Employment Dynamics and the Returns to Entrepreneurship (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1261

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