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Endogenous Risk and Growth

Author

Listed:
  • Jesse Perla

    (NYU)

  • Christopher Tonetti

    (New York University)

Abstract

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.

Suggested Citation

  • Jesse Perla & Christopher Tonetti, 2012. "Endogenous Risk and Growth," 2012 Meeting Papers 479, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:479
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    File URL: https://economicdynamics.org/meetpapers/2012/paper_479.pdf
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    References listed on IDEAS

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    1. Ricardo Lagos, 2006. "A Model of TFP," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 983-1007.
    2. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
    3. 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.
    4. Juan Carlos Cordoba & Genevieve Verdier, 2005. "Lucas vs. Lucas: On Inequality and Growth," Macroeconomics 0511021, EconWPA.
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    Cited by:

    1. Lagakos, David & Moll, Benjamin & Porzio, Tommaso & Qian, Nancy, 2012. "Experience Matters: Human Capital and Development Accounting," CEPR Discussion Papers 9253, C.E.P.R. Discussion Papers.
    2. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2014. "Catch-up and fall-back through innovation and imitation," Journal of Economic Growth, Springer, vol. 19(1), pages 1-35, March.
    3. Alessandra Fogli & Laura Veldkamp, 2012. "Germs, Social Networks and Growth," NBER Working Papers 18470, National Bureau of Economic Research, Inc.

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