Risk Attitudes and Self-employment in China

Using the 2006 wave of the Chinese General Social Survey, the present paper examines the effect of risk attitudes on the likelihood of entrepreneurship in China. Our results show that risk attitudes have a nonlinear effect on the likelihood of being entrepreneurs. Risk neutral people are most likely to be entrepreneurs, while both risk averse and risk seeking people prefer to work for wages. When we further divide entrepreneurs into necessity and opportunity entrepreneurs, we find only a marginal difference in risk attitudes between wage workers and necessity entrepreneurs, while less risk averse individuals tend to be opportunity entrepreneurs. Our results have important policy implications for the government's efforts to promote entrepreneurial activities.