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The Effects of Risk on Self-Employment


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.

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Parker, S.C. The Effects of Risk on Self-Employment. Small Business Economics 9, 515–522 (1997).

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