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

  • 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)

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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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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  1. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  2. Joao Gomes & Jeremy Greenwood & Sergio T. Rebelo, 2001. "Equilibrium Unemployment," RCER Working Papers 479, University of Rochester - Center for Economic Research (RCER).
  3. Eric R Young, 2005. "Approximate Aggregation," Computing in Economics and Finance 2005 141, Society for Computational Economics.
  4. Luo, Yulei & Young, Eric R., 2009. "The Wealth Distribution And The Demand For Status," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 1-30, May.
  5. Angeletos, George-Marios & Calvet, Laurent-Emmanuel, 2006. "Idiosyncratic production risk, growth and the business cycle," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1095-1115, September.
  6. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Asset pricing with idiosyncratic risk and overlapping generations," Seminar Papers 703, Stockholm University, Institute for International Economic Studies.
  7. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
  8. Marco Cagetti & Mariacristina De Nardi, 2003. "Entrepreneurship, frictions and wealth," Working Papers 620, Federal Reserve Bank of Minneapolis.
  9. 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.
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