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Misallocation of Capital in a Model of Endogenous Financial Intermediation and Insurance

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  • Radim Bohacek

    ()

  • Hugo Rodríguez-Mendizábal

    ()

Abstract

In this paper we analyze productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and endogenous financial intermediation. We study the effects of borrowing and lending, insurance, and risk sharing on the optimal allocation of resources. We find that financial markets together with general equilibrium effects have large impact on entrepreneurs' entry and firm-size decisions. Efficiency gains are increasing in the quality of financial markets, particularly in their ability to alleviate a financing constraint by providing insurance against idiosyncratic risk.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 867.11.

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Length: 45
Date of creation: 15 Mar 2011
Date of revision:
Handle: RePEc:aub:autbar:867.11

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Keywords: Financial markets and the macroeconomy; Occupational choice; Personal income and wealth and their distributions;

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  1. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, vol. 104(7), pages 2075-2126, July.
  2. Arellano, Cristina & Bai, Yan & Zhang, Jing, 2012. "Firm dynamics and financial development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(6), pages 533-549.
  3. Francisco J. Buera & Joseph Kaboski & Yongseok Shin, 2009. "Finance and Development: A Tale of Two Sectors," NBER Working Papers 14914, National Bureau of Economic Research, Inc.
  4. Nick Bloom & John Van Reenen, 2010. "Why do Management Practices Differ Across Firms and Countries?," CEP Occasional Papers 26, Centre for Economic Performance, LSE.
  5. Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(1), pages 100-144, February.
  6. Marco Cagetti & Mariacristina De Nardi, 2004. "Taxation, entrepreneurship, and wealth," Staff Report, Federal Reserve Bank of Minneapolis 340, Federal Reserve Bank of Minneapolis.
  7. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
  8. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  9. Joao Gomes & Jeremy Greenwood & Sergio Rebelo, 1997. "Equilibrium Unemployment," NBER Working Papers 5922, National Bureau of Economic Research, Inc.
  10. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 604-631, June.
  11. Bohacek, Radim, 2006. "Financial constraints and entrepreneurial investment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 2195-2212, November.
  12. Marcelo Veracierto, 2000. "Employment flows, capital mobility, and policy analysis," Working Paper Series, Federal Reserve Bank of Chicago WP-00-5, Federal Reserve Bank of Chicago.
  13. Gine, Xavier & Townsend, Robert M., 2004. "Evaluation of financial liberalization: a general equilibrium model with constrained occupation choice," Journal of Development Economics, Elsevier, vol. 74(2), pages 269-307, August.
  14. Mariacristina De Nardi & Phil Doctor & Spencer D. Krane, 2007. "Evidence on entrepreneurs in the United States: data from the 1989–2004 survey of consumer finances," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 18-36.
  15. Andrés Erosa & Ana Hidalgo Cabrillana, 2008. "On Finance As A Theory Of Tfp, Cross-Industry Productivity Differences, And Economic Rents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 437-473, 05.
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