Endogenous Risk and Growth
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.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Ricardo Lagos, 2006.
"A Model of TFP,"
Review of Economic Studies,
Oxford University Press, vol. 73(4), pages 983-1007.
- Lagos, R., 2001. "A Model of TFP," Working Papers 01-08, C.V. Starr Center for Applied Economics, New York University.
- Ricardo Lagos, 2006. "A model of TFP," Staff Report 345, Federal Reserve Bank of Minneapolis.
- Aw, Bee Yan & Chen, Xiaomin & Roberts, Mark J., 2001. "Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing," Journal of Development Economics, Elsevier, vol. 66(1), pages 51-86, October.
- Juan Carlos Cordoba & Genevieve Verdier, 2005. "Lucas vs. Lucas: On Inequality and Growth," Macroeconomics 0511021, EconWPA.