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Endogenous Risk and Growth

Author

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  • Jesse Perla

    (NYU)

  • Christopher Tonetti

    (New York University)

Abstract

While much of recent growth literature has focused on innovation in the technology frontier, less attention has been paid to the role of the least productive agents in generating growth. We develop an analytically tractable model where growth is created as a positive externality from risk taking by individuals at the bottom of the productivity distribution learning from more productive agents. Heterogeneous firms choose to produce or pay a cost and search for a better opportunity within the economy. Sustained growth comes from the feedback between the endogenously determined distribution of productivity, as evolved by past search decisions, and an optimal forward looking search policy. The growth rate depends on characteristics of the productivity distribution, with a thicker tailed distribution leading to more growth.

Suggested Citation

  • Jesse Perla & Christopher Tonetti, 2012. "Endogenous Risk and Growth," 2012 Meeting Papers 479, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:479
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    References listed on IDEAS

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    Cited by:

    1. Qian, Nancy & Lagakos, David & Moll, Benjamin & Porzio, Tommaso, 2012. "Experience Matters: Human Capital and Development Accounting," CEPR Discussion Papers 9253, C.E.P.R. Discussion Papers.
    2. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2014. "Catch-up and fall-back through innovation and imitation," Journal of Economic Growth, Springer, vol. 19(1), pages 1-35, March.
    3. Alessandra Fogli & Laura Veldkamp, 2021. "Germs, Social Networks, and Growth [Unbundling Institutions]," Review of Economic Studies, Oxford University Press, vol. 88(3), pages 1074-1100.

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