IZA DP No. 468: The Impact of Risk Aversion, Role Models, and the Regional Milieu on the Transition from Unemployment to Self-Employment: Empirical Evidence for Germany
published in: Jahrbücher für Nationalökonomie und Statistik, 2003, 223 (2), 204-221
The focus of this paper is on the choice of the unemployed between becoming an
entrepreneur or not. It contributes to the literature by empirically investigating two hitherto
neglected issues: What is the impact of risk aversion and personal contact with a role model
in shaping the decision to become an entrepreneur (controlling for standard demographic
variables, i.e. sex, age, and education)? And given the personal characteristics and attitudes,
how does the regional 'entrepreneurial milieu' affect the decision to start a new business out
of unemployment? The econometric study is based on data from a recent representative
survey of the population in ten German planning regions. We use a version of the probit
model that takes care of the regional stratification of the data, and the results of the nonlinear
models are carefully interpreted and illustrated. We show that a high degree of risk aversion,
and lack of personal contact with a young entrepreneur, both reduce the probability of
starting one's own business. A favourable 'regional entrepreneurial milieu' (proxied by higher
levels of current start-up activity and larger shares of unemployed among the starters in a
region) has a positive effect on the individual propensity to step into self-employment. All
these impacts are not only statistically significant, but economically important, too.
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