Skip to main content

The Effects of Risk on Self-Employment

Small Business Economics volume 9, pages 515–522 (1997)Cite this article

Abstract

The effects of sectoral risk on the propensity to become self-employed are analysed. In contrast to previous studies which assume risk is concentrated only in the self-employment sector, a general equilibrium model is constructed in which uninsurable risk exists in both the paid- and self-employed sectors. It is shown that when agents wish to mix self-employment and employee participation, the effects of sectoral risk on the optimal self-employment decision is ambiguous. This result disappears if agents choose instead to participate in one sector alone.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

References

  • Blanchflower, D. G. and A. J. Oswald, 1991, ‘What Makes an Entrepreneur?’, Applied Economics Disc. Paper 125, Institute of Economics and Statistics, Univ. of Oxford.

  • Brealey, R. A. and S. C. Myers, 1992, Principles of Corporate Finance (fourth edition), McGraw-Hill, New York.

    Google Scholar 

  • Campbell, M. and M. Daly, 1992, ‘Self-employment: Into The 1990s, Employment Gazette (June), 269-292.

  • Casson, M., 1982, The Entrepreneur: an Economic Theory, Martin Robertson, Oxford.

    Google Scholar 

  • Dixit, A. K. and R. Rob, 1994, Switching Costs and Sectoral Adjustments in General Equilibrium with Uninsured Risk, Journal of Economic Theory 62, 48-69.

    Google Scholar 

  • Evans, D. and B. Jovanovic, 1989, ‘An Estimated Model of Entrepreneurial Choice Under Liquidity Constraints, Journal of Political Economy 97, 808-827.

    Google Scholar 

  • Foti, A. and M. Vivarelli, 1994, ‘An Econometric Test of The Self-employment Model: The Case of Italy, Small Business Economics 6, 81-93.

    Google Scholar 

  • Hopenhayn, H. A., 1986, ‘A Competitive Stochastic Model of Entry and Exit to an Industry’, Mimeograph, Stanford University.

  • Jovanovic, B., 1982, ‘Selection and The Evolution of Industry’, Econometrica 50, 649-670.

    Google Scholar 

  • Keeble, D., S. Walker and M. Robson, 1993, New Firm Formation and Small Business Growth in the United Kingdom, Employment Dept. Research Series No. 15, University of Cambridge.

  • Kihlstrom R. and J. J. Laffont, 1979, ‘A General Equilibrium Entrepreneurial Theory of Firms Formation Based on Risk Aversion, Journal of Political Economy 87, 719-748.

    Google Scholar 

  • Kihlstrom R. and J. J. Laffont, 1982, ‘A Competitive Entrepreneurial Model of a Stock Market’, in John McCall (ed.), Economics of Information and Uncertainty, University of Chicago Press, Chicago, pp. 141-200.

    Google Scholar 

  • Knight, F. H., 1921, Risk, Uncertainty and Profit, Houghton Mifflin, New York.

    Google Scholar 

  • Lippman, S. A. and R. P. Rumelt, 1982, ‘Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency Under Competition’, Bell Journal of Economics 13, 418-438.

    Google Scholar 

  • Lucas, R. E., 1978, ‘On The Size Distribution of Business Firms’, Bell Journal of Economics 9, 508-523.

    Google Scholar 

  • Meager, N., G. Court and J. Moralee, 1996, ‘Self-employment and The Distribution of Income’, in John Hills (ed.), New Inequalities: the Changing Distribution of Income and Wealth in the United Kingdom, Cambridge University Press, Cambridge, pp. 208-235.

    Google Scholar 

  • Merton, R. C., 1969, ‘Lifetime Portfolio Selection Under Uncertainty: The Continuous Time Case’, Review of Economics and Statistics 51, 247-257.

    Google Scholar 

  • Parker, S. C., 1996a, ‘A Time Series Model of Self-employment Under Uncertainty’, Economica 62, forthcoming.

  • Parker, S. C., 1996b, ‘Risk, Returns and Self-employment: Theory and Evidence for the U.S. and the U.K., Working Paper No. 162, Department of Economics, University of Durham.

  • Revelli, R. and S. Tenga, 1989, ‘The Determinants of New Firm Formation in Italian Manufacturing’, Small Business Economics 1, 181-192.

    Google Scholar 

  • Wit, G. de, 1993, ‘Models of Self-employment in a Competitive Market, Journal of Economic Survey 7, 367-397.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Durham, Durham, DH1 3Y, U.K

    Simon C. Parker

Authors
  1. Simon C. Parker
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Parker, S.C. The Effects of Risk on Self-Employment. Small Business Economics 9, 515–522 (1997). https://doi.org/10.1023/A:1007919805306

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1007919805306

Keywords

  • Equilibrium Model
  • General Equilibrium
  • Industrial Organization
  • General Equilibrium Model
  • Employee Participation