Being One'S Own Boss: How Does Risk Fit In?

Abstract

Simon Parker (2004) argues economists generally think risk attitudes are an important determinant in self-employment decisions, but the econometric evidence is limited. Data shortcomings have been the primary obstacle in estimating the relationship between risk attitudes and self-employment decisions. A step toward bridging the gap between data and theory was made by Brunnermeier and Nagel (2008), who considered revealed preferences by creating risk proxy variables as the ratio between risky and safe assets. This paper explores the ways a similar risk proxy variable interacts with self-employment decisions. Overall, the relative riskiness of financial decisions impacts self-employment in complex ways.