Working Paper: NBER ID: w25006
Authors: Barton H. Hamilton; Nicholas W. Papageorge; Nidhi Pande
Abstract: We construct a structural model of entry into self-employment to evaluate the impact of policies supporting entrepreneurship. Previous work has recognized that workers may opt for self-employment due to the non-pecuniary benefits of running a business and not necessarily because they are good at it. Other literature has examined how socio-emotional skills, such as personality traits, affect selection into self-employment. We link these two lines of inquiry. The model we estimate captures three factors that affect selection into self-employment: credit constraints, relative earnings and preferences. We incorporate personality traits by allowing them to affect sector-specific earnings as well as preferences. The estimated model reveals that the personality traits that make entrepreneurship profitable are not always the same traits driving people to open a business. This has important consequences for entrepreneurship policies. For example, subsidies for small businesses do not attract talented-but-reluctant entrepreneurs, but instead attract individuals with personality traits associated with strong preferences for running a business and low-quality business ideas.
Keywords: Entrepreneurship; Personality Traits; Self-Employment; Socioemotional Skills
JEL Codes: J23; J24; J31; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| extraversion (Z13) | entry into self-employment (L26) |
| extraversion (Z13) | self-employment profitability (L26) |
| openness (O36) | entry into self-employment (L26) |
| openness (O36) | self-employment performance (L25) |
| credit constraints (E51) | entry decisions (Y20) |
| credit constraints (E51) | business quality (L15) |
| subsidies (H20) | preferences for entrepreneurship (L26) |
| subsidies (H20) | quality of business ideas (L15) |