A Note on Entrepreneurial Risk, Capital Market Imperfections, and Heterogeneity
18 Pages Posted: 9 Nov 2008
Date Written: May 21, 2005
Empirical evidence shows that entrepeneurs 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 the wealth distribution and aggregate activity in an incomplete market economy. It is shown that the entrepreurial risk can substantially affect both the wealth distribution and the macroeconomy.
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