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<P><FONT color=#800080>An Empirical Analysis of Self-Employment in the U.K. </FONT></P>
<P>SUMMARY<BR><BR>The paper formulates a self-employment/paid-employment choice problem that draws upon Knight's notion that the individual responds to the risk-adjusted relative earnings opportunities in each sector. Based on a development of such choice-theoretic considerations, an econometric model is developed with the purpose of empirically examining the determinants of self-employment. The model features simultaneous determination of employment status and earnings, which allows for self-selectivity. The model is estimated using a sample of 4762 individuals from the General Household Survey for 1978.The estimation of the earnings equation enables a calculation of the self-employment/paid-employment earnings differential and the estimated probit equation for self-employment/paid-employmentstatus facilitates the prediction of the probability of self-employment. he paper finds that there is positive selection bias in the observed earnings of employees, that the probability of self-employment depends positively on the earnings difference between the two sectors and that education and age are significant determinants of self-employment.</P>