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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.

Suggested Citation

  • Radim Bohacek & Hugo Rodríguez-Mendizábal, 2011. "Misallocation of Capital in a Model of Endogenous Financial Intermediation and Insurance," UFAE and IAE Working Papers 867.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:867.11
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    Cited by:

    1. David Cuberes & Marc Teignier, 2012. "Gender Gaps in the Labor Market and Aggregate Productivity," Working Papers 2012017, The University of Sheffield, Department of Economics.

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    More about this item

    Keywords

    Financial markets and the macroeconomy; Occupational choice; Personal income and wealth and their distributions;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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