Drug Dealing, Incarceration, and Self-Employment

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Theoretical models of self employment posit that risk aversion, entrepreneurial ability, and a preference for autonomy are central to the individual's decision between self employment and wage/salary work. Absent actual measured of these factors, previous empirical studies have included crude proxies, such as age, education, marital status and spousal characteristics, in their econometric models of self employment. The empirical literature, therefore, has not been able to adequately test whether risk aversion, entrepreneurial ability, and a preference for autonomy are important determinants of self employment. A potentially superior proxy for these three factors is whether the individual sold drugs in the past. The nature of drug dealing makes it likely to be attractive to individuals who are less risk averse, have more entrepreneurial ability and have a preference for autonomy, all else equal. The relationship between drug dealing and legitimate self employment, however, has not been examined in the literature. Data from the National Longitudinal Survey of Youth (NLSY) will be used to investigate whether young drug dealers are more likely to choose self employment than non drug dealers early in their careers. This project will bring together research on self employment and the economics of crime to shed new light on previously unresolved issues in both literatures. The findings from this research will also provide insight into the extent to which governmental programs promoting self employment among youths, former drug dealers, and ex convicts can be effective.