Gender differences in entrepreneurial choice and risk aversion - a decomposition based on a microeconometric model

Why are female entrepreneurs so rare? In Germany, women exhibit both a lower entry rate into and higher exit rate from self-employment. To explain this gender gap, this study estimates a structural microeconometric model of transition rates that includes a standard risk aversion parameter. Inputs into the model are the expected value and variance of earnings from self-employment and dependent employment, estimated separately by gender and accounting for nonrandom selection into self-employment. The gender differential in the transition rates is decomposed using a novel extension of the Blinder-Oaxaca technique for nonlinear models. Women's higher estimated risk aversion explains the largest part of their higher exit rate but only a small portion of their lower entry rate.