Heterogeneous producers facing common shocks: An overlapping-generations example
An analytically tractable model of a competitive, full-information economy is provided in which, for some parameter values, entry and exit over the course of the business cycle is concentrated among small firms. This model is intended to make the logical point that the relatively high sensitivity of small firms to business-cycle fluctuations does not necessarily indicate the presence of informational or incentive constraints in financial markets.
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