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In this paper, the authors explore the importance of non-pecuniary benefits in explaining small business formation. First, using new data from the Panel Study of Entrepreneurial Dynamics, the authors show that a majority of small business owners report that non-pecuniary benefits were the primary reason that they started their business. Very few of these new business owners reported that innovation, along any dimension, was an important aspect of the new business. After showing that non-pecuniary benefits are an important driver of small business formation, the authors embed such preferences into a standard model of occupational choice.
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