Abstract
Abstract Do more risk loving migrants opt for self-employment? We use a novel vignette-adjusted measure of risk preferences to investigate the link between risk aversion and entrepreneurship in migrant communities. Using an original representative household survey of the migrant population in the Greater Dublin Area, we find a significant negative relationship between risk aversion and entrepreneurship. Our results show that the use of vignettes improves the significance of the results, as they simultaneously correct for differential item functioning (where respondents interpret the self-evaluation scale in different ways) between entrepreneurs and non-entrepreneurs, and correct for variation in the use of self-evaluation scales between migrants from different countries of origin. This finding may help explaining the variability in results on the correlation between risk preferences and entrepreneurship reported in previous studies. JEL: F22; J01; J15; J61; L26
Highlights
The deepening economic crisis in many western countries has resulted in a general trend of increasingly restrictive policies toward immigration (OECD 2010)
Summary and conclusion This paper investigates the relationship between risk aversion and entrepreneurship, looking at a migrant population
The main challenge in investigating the relationship between risk aversion and entrepreneurship amongst migrants is to ensure that measures of risk preferences are comparable across individuals
Summary
The deepening economic crisis in many western countries has resulted in a general trend of increasingly restrictive policies toward immigration (OECD 2010). In this way, it provides an improved measure to test the relationship between risk preferences and entrepreneurship in heterogeneous populations, such as the sample of immigrants used in this study – this is an original contribution to the existing literature on risk aversion and entrepreneurship. We use non-parametric and semi-parametric scale readjustment methods as well as a more sophisticated Compound Hierarchical Ordered Probit (CHOPIT) model in order to compare these results against the ones obtained using the non-adjusted measure Comparing these results will show the effect that controlling for Differential Item Functioning (DIF) can have on the general conclusion regarding the link between risk aversion and entrepreneurship in our migrant sample
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