Dillon, Eleanor W. <br/><br/>
Self-Employment Dynamics and the Returns to Entrepreneurship / 
Eleanor W. Dillon, Christopher T. Stanton. 
 - Cambridge, Mass.  National Bureau of Economic Research  2017. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w23168 .
 - Working Paper Series (National Bureau of Economic Research)  no. w23168. .
<br/><br/> February 2017. 
<br/><br/> Small business owners and others in self-employment have the option to transition to paid work. If there is initial uncertainty about entrepreneurial earnings, this option increases the expected lifetime value of self-employment relative to pay in a single year. This paper first documents that moves between paid work and self-employment are common and consistent with experimentation to learn about earnings. This pattern motivates estimating the expected returns to entrepreneurship within a dynamic lifecycle model that allows for non-random selection and gradual learning about the entrepreneurial earnings process.  The model accurately fits entry patterns into self-employment by age.  The option value of returning to paid work is found to constitute a substantial portion of the monetary value of entrepreneurship.    The model is then used to evaluate policies that change incentives for entry into self-employment. 
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