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A Note on Entrepreneurial Risk, Capital Market Imperfections, and Heterogeneity

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Author Info

  • Yulei Luo

    (University of Hong Kong)

  • Liutang Gong

    (Peking University)

  • Heng-fu Zou

    (The World Bank
    CEMA at the Central University of Finance and Economics
    Shenzhen University
    IAS at Wuhan University)

Abstract

Empirical evidence shows that entrepreneurs hold a large fraction of wealth, have higher saving rates than workers, and face substantial uninsurable entrepreneurial and investment risks. This paper constructs a heterogeneous-agent general equilibrium model with uninsurable entrepreneurial risk and capital market imperfections to explore the implications of uninsurable entrepreneurial risk for wealth distribution and aggregate activity in an incomplete market economy. It is shown that entrepreurial risk can substantially affect both the wealth distribution and the macroeconomy.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 409.

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Length: 16 pages
Date of creation: 2010
Date of revision:
Publication status: Published in Macroeconomic Dynamics, Cambridge University Press, vol. 14(02), pages 269-284, April.
Handle: RePEc:cuf:wpaper:409

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Web page: http://cema.cufe.edu.cn/
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Related research

Keywords: Wealth Distribution; Idiosyncratic Entrepreneurial Risk; Incomplete Capital Markets;

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References

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  1. Joao Gomes & Jeremy Greenwood & Sergio Rebelo, 1997. "Equilibrium Unemployment," NBER Working Papers 5922, National Bureau of Economic Research, Inc.
  2. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1996. "Asset pricing with idiosyncratic risk and overlapping generations," Economics Working Papers 405, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 1999.
  3. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
  4. George-Marios Angeletos & Laurent E. Calvet, 2002. "Idiosyncratic Production Risk, Growth and the Business Cycle," Harvard Institute of Economic Research Working Papers 1952, Harvard - Institute of Economic Research.
  5. Eric R. Young, 2004. "The Wealth Distribution and the Demand for Status," Macroeconomics 0410008, EconWPA.
  6. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  7. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  8. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
  9. Eric R Young, 2005. "Approximate Aggregation," Computing in Economics and Finance 2005 141, Society for Computational Economics.
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