Determinants of Self-employment

This text develops a unifying model in which most of the market and personal determinants are integrated and set into perspective. It is shown how the developed unifying model can be converted into the well-known logit/probit models with estimable parameters. In this way these latter models are given a sound theoretical basis. Moreover, an explicit link is accomplished between two fields of economics that so far have developed almost independently: the theoretical general-equilibrium models and the empirical logit/probit models. The parameters of the derived probit models are estimated using two different data sets. The results are particularly interesting because use is made of a data set containing childhood and family background information of the potentially self-employed individuals. Finally, it is shown how the models of self-employment described in this book can be used to analyze the transitions from a centrally planned economy to a market economy, which take place in Eastern Europe and the former Soviet republics. More specifically, political economic conditions are derived that may stimulate or inhibit such transitions.