drug dealing & pluck

Doug Henwood dhenwood at panix.com
Thu Mar 23 11:36:55 PST 2000


[Back during the Reagan years I had a chat with a street-corner pot dealer who used all the entrepreneurial lingo that was getting fashionable at the time.]

"Drug Dealing and Legitimate Self-Employment"

BY: ROBERT W. FAIRLIE

University of California at Santa Cruz

Joint Center for Poverty Research, Northwestern

University

Joint Center for Policy Research, University of

Chicago

Paper ID: UCSC Department of Economics Working Paper No. 453

Date: November 1999

Contact: ROBERT W. FAIRLIE

Email: Mailto:rfairlie at cats.ucsc.edu

Postal: University of California at Santa Cruz

Social Sciences I

Santa Cruz, CA 95064 USA

Phone: (408)459-3332

Fax: (408)459-5000

Paper Requests:

Send a check for $6 payable to "UC Regents" to Mr. Jeremy

Miller, Department of Economics, 217 Social Sciences I,

University of California, Santa Cruz, CA 95064.

ABSTRACT:

Theoretical models of self-employment posit that attitudes

toward risk, entrepreneurial ability, and preferences for

autonomy are central to the individual's decision between

self-employment and wage/salary work. None of the studies in the

rapidly growing empirical literature on self-employment,

however, have been able to test whether these factors are

important determinants of self-employment. I provide indirect

evidence on this hypothesis by examining the relationship

between drug dealing and legitimate self-employment. A review of

ethnographic studies in the criminology literature indicates

that drug dealing may represent a useful proxy for low risk

aversion, entrepreneurial ability, and a preference for

autonomy. The 1980 wave of the National Longitudinal Survey of

Youth (NLSY) contained a special section on participation in

illegal activities, including questions on selling marijuana and

other "hard" drugs. I use the answers to these questions and

data from subsequent years of the NLSY to examine the

relationship between drug dealing as a youth and legitimate

self-employment in later years. Using various definitions of

drug dealing and specifications of the econometric model, I find

that drug dealers are 11 to 21 percent more likely to choose

self-employment than non drug dealers, all else equal. I also

find that drug dealers who sold more frequently, used drugs less

frequently, or reported receiving income from drug dealing are

more likely to choose self-employment than other drug dealers.

After ruling out a few alternative explanations, I interpret

these results as providing indirect evidence that risk aversion,

entrepreneurial ability, and preferences for autonomy are

important determinants of self-employment.

JEL Classification: J23, K42



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