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Endogenous Risk and Growth

  • Jesse Perla


  • Christopher Tonetti

    (New York University)

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.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 479.

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Date of creation: 2012
Date of revision:
Handle: RePEc:red:sed012:479
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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