An M-sector,N-group behavioral model of self-employment

A behavioral model is developed to determine the number of self-employed individuals in an economy characterized by different production sectors and social groups of which the individuals differ by their risk-aversion, their evaluation of job characteristics other than income, their expected managerial ability, the variance of their managerial ability and their productive performance as employee. The model leads to a linear complementarity problem that can be solved by the Lemke-algorithm. The 1-sector, n-group model and the m-sector, 2-group model are singled out for an extensive comparative static analysis.The research reported in this paper is part of the project Economics of Political Decision-making of the University of Amsterdam. We acknowledge the financial support obtained from the Ministry of Economic Affairs by way of the Research Institute for Small and Medium-Sized Business. We are grateful to M. A. Keyzer and an anonymous referee for useful comments and suggestions. We further acknowledge the comments by P. S. A. Renaud, A. R. Thurik, A. J. M. Kleijweg, and participants in the 1987 meeting of the European Economic Association and the 1987 Econometric Society European Meeting (both in Copenhagen) on an earlier version of this paper. All errors and omissions remain our responsibility.