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Market Size, Entrepreneurship, and Income Inequality

  • Pokrovsky Dmitry

    ()

  • Behrens Kristian

    ()

  • Zhelobodko Evgeny

We develop a monopolistic competition model with two sectors and heterogeneousagents who self-select into entrepreneurship, depending on entrepreneurial ability. Theeffect of market size on the equilibrium share of entrepreneurs crucially hinges on propertiesof the lower-tier utility function for differentiated varieties – its elasticity of substitutionand its Arrow-Pratt index of relative risk aversion. We show that the share of entrepreneurs,and the cutoff for self-selection into entrepreneurship, can increase or decrease with marketsize. The properties of the underlying ability distribution largely determine how incomeinequality changes with market size.

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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 14/01e.

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Date of creation: 30 Jan 2014
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Handle: RePEc:eer:wpalle:14/01e
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  1. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, 03.
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  7. Kristian Behrens & Frédéric Robert-Nicoud, 2013. "Survival of the Fittest in Cities: Urbanisation and Inequality," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13074, Institut d'Economie et Econométrie, Université de Genève.
  8. Jan Eeckhout & Roberto Pinheiro & Kurt Schmidheiny, 2013. "Spatial sorting," IFS Working Papers W13/18, Institute for Fiscal Studies.
  9. SATO Yasuhiro & TABUCHI Takatoshi & YAMAMOTO Kazuhiro, 2012. "Market Size and Entrepreneurship," Discussion papers 12002, Research Institute of Economy, Trade and Industry (RIETI).
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  11. Sabrina Di Addario & Daniela Vuri, 2010. "Entrepreneurship and Market Size. The Case of Young College Graduates in Italy," CEIS Research Paper 171, Tor Vergata University, CEIS, revised 08 Nov 2010.
  12. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  13. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
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  18. repec:cor:louvrp:-2342 is not listed on IDEAS
  19. Markus Poschke, 2012. "Who Becomes an Entrepreneur? Labor Market Prospects and Occupational Choice," Cahiers de recherche 13-2012, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  21. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  22. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x.
  23. Nathaniel Baum-Snow & Ronni Pavan, 2013. "Inequality and City Size," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1535-1548, December.
  24. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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  26. Edward L. Glaeser & Matt Resseger & Kristina Tobio, 2009. "Inequality In Cities," Journal of Regional Science, Wiley Blackwell, vol. 49(4), pages 617-646.
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