Entrepreneurship, frictions, and wealth

Marco Cagetti, Mariacristina De Nardi

Research output: Contribution to journalArticlepeer-review

277 Scopus citations

Abstract

This paper constructs and calibrates a parsimonious model of occupational choice that allows for entrepreneurial entry, exit, and investment decisions in the presence of borrowing constraints. The model fits very well a number of empirical observations, including the observed wealth distribution for entrepreneurs and workers. At the aggregate level, more restrictive borrowing constraints generate less wealth concentration and reduce average firm size, aggregate capital, and the fraction of entrepreneurs. Voluntary bequests allow some high-ability workers to establish or enlarge an entrepreneurial activity. With accidental bequests only, there would be fewer very large firms and less aggregate capital and wealth concentration.

Original languageEnglish (US)
Pages (from-to)835-870
Number of pages36
JournalJournal of Political Economy
Volume114
Issue number5
DOIs
StatePublished - Oct 2006

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