Entrepreneurship, Frictions, and Wealth. Cagetti, M. & De Nardi, M. Journal of Political Economy, 114(5):835–870, The University of Chicago Press, 2006.
Entrepreneurship, Frictions, and Wealth [pdf]Paper  abstract   bibtex   
This paper constructs and calibrates a parsimonious model of occupational choice that allows for entrepreneurial entry, exit, and investment decisions in the presence of borrowing constraints. The model fits very well a number of empirical observations, including the observed wealth distribution for entrepreneurs and workers. At the aggregate level, more restrictive borrowing constraints generate less wealth concentration and reduce average firm size, aggregate capital, and the fraction of entrepreneurs. Voluntary bequests allow some high-ability workers to establish or enlarge an entrepreneurial activity. With accidental bequests only, there would be fewer very large firms and less aggregate capital and wealth concentration.

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