Grad Student/Postdoc Seminar

Dec 4:  Cloe.Tergiman, NYU Economics

Entrepreneurship Does Pay

  Existing evidence suggests that returns to entrepreneurship are low. In particular, Hamilton (2000) claims that entrepreneurs face a stream of future median earnings far below what they could earn as employees. These findings have been associated with non-pecuniary benefits, and more generally with heterogeneity in preferences, rationality or beliefs. In this paper I challenge this view. I extend the data to include younger and older workers and entrepreneurs. I show that the differential in earnings is in fact U-shaped, with entrepreneurs earning more than wage workers both early and late in their lives. I argue that the difference in the earnings profile can be rationalized in the context of a life-cycle model of occupational choice where agents are fully informed, face no uncertainty, are fully rational, and ex-ante identical. I estimate this model and show that the lifetime returns to entrepreneurship can in fact be identical to those of being a wage worker.

Back to fall 2009 schedule