The Right Stuff? Personality and Entrepreneurship

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 nonpecuniary 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.

Entrepreneurial career paths: occupational context and the propensity to become self-employed

“…In addition, we include a control variable indicating whether the respondent resides in East Germany and another control variable indicating whether the respondent lives in a rural or urban setting.8 It could be argued that the residuals in a Mincer regression reflect the variability of workers' innate abilities within an occupation rather than the occupation-specific earnings risk. Hence, we additionally control for an effect of a person's non-cognitive skills on the level of earnings (see, e.g.,Hamilton et al 2015) by including the Big Five dimensions of personality. 9 The occupation-specific variance of the residuals in the Mincer regression constitutes our measure of earnings risk.…”