Slipping the surly bonds: The value of autonomy in self-employment

David C. Croson, Maria Minniti

Research output: Contribution to journalArticle

42 Scopus citations

Abstract

This paper models the tradeoff between increased autonomy from self-employment and the generally higher income that traditional employment offers. While the demand for autonomy is a purely psychological construct, the economic tradeoffs involved in its achievement are eminently amenable to quantification and analytical modeling characteristic of economic analysis. We use this setup to offer a multifactor utility formulation formalizing the notion of an explicit, autonomy-based preference for self-employment. We propose such a formulation as a theoretically-defensible alternative to the classic (and also psychologically-based) overconfidence hypothesis in explaining why self-employment is chosen despite evidence that newly self-employed individuals earn less than comparable individuals who continue their current employment. Our model, founded on utility maximization by a rational individual, demonstrates not only that newly self-employed individuals are willing to accept lower earnings outcomes in exchange for psychic benefits from self-employment, but also that the structure of their optimal launch-timing decision guarantees that they will quit at a time such that their income will (at least initially) be reduced. We conclude with implications for the design of empirical instruments to quantify the relative importance of autonomy and income.

Original languageEnglish (US)
Pages (from-to)355-365
Number of pages11
JournalJournal of Economic Psychology
Volume33
Issue number2
DOIs
StatePublished - Apr 1 2012
Externally publishedYes

Keywords

  • Autonomy
  • Entrepreneurship
  • Freedom
  • Mathematical modeling
  • Quitting
  • Self-employment
  • Timing
  • Tradeoff
  • Utility
  • Value

ASJC Scopus subject areas

  • Applied Psychology
  • Sociology and Political Science
  • Economics and Econometrics

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