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- Title
A Time Series Model of Self-employment under Uncertainty.
- Authors
Parker, Simon C.
- Abstract
The article applies the techniques of stochastic control in choosing an optimal balance between self-employment and paid employment in Great Britain. The paper begins with a model of inter-temporal optimizing behavior for a price (wage)-taking individual whose returns from self-employment are subject to uncertainty. The solution of the model shows that the proportion of time allocated by an individual to self- employment will vary positively with the difference between expected (weighted) income growth in self-employment and hired employment and inversely with the riskiness of returns to self-employment and the degree of risk aversion. But because individuals differ with respect to theft endowments of managerial skills, they will also differ with regard to the difference between expected income growth in self-employment and hired employment. Extending the model to deal with this type of heterogeneity, and recognizing that agents typically choose to pursue either self-employment or hired employment, a functional form is arrived at which is then estimated using a time series of recent Great Britain data.
- Subjects
UNITED Kingdom; TIME series analysis; SELF-employment; STOCHASTIC control theory; STOCHASTIC processes; INCOME
- Publication
Economica, 1996, Vol 63, Issue 251, p459
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2555017