Risk Preferences and Rural Self‐Employment Behavior: Theory and Empirical Evidence From China

ABSTRACT This study examines the nexus between risk preferences and risky rural self‐employment behavior based on a mean‐variance (MV) analysis. A simple theoretical model is developed to demonstrate rural labor allocation decisions and multiple risk‐bearing by villagers who differ in risk preferences. Using 716 field data collected from incentivized lottery‐choice tasks and in‐depth interviews in rural China, we find that villagers with higher degrees of risk aversion are less likely to engage in risky self‐employment practices, and this relationship is exacerbated under conditions of agricultural risk. Aside from risk preferences, in addition, villagers’ age, gender, health status, and household‐level characteristics, such as internet accessibility, are also significantly relevant to the self‐employment propensity.