Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms Markup

Samuel Brien ()

No 1476, Working Paper from Economics Department, Queen's University

Abstract: This paper examines the effect of wealth concentration on firms’ market powerwhen firm entry is driven by entrepreneurs facing uninsurable idiosyncratic risks. Undergreater wealth concentration, households in the lower end of the wealth distribution aremore risk averse and less willing (or able) to bear the risk of entrepreneurial activities.This has implications for firm entry, competitiveness, and market power.I calibrate a Schumpeterian model of endogenous growth with heterogeneous riskaverse entrepreneurs competing to catch up with firms. This model is unique in thatboth household wealth distribution and a measure of firm markup are endogenouslydetermined on a balanced growth path. I find that a spread in the wealth distributiondecreases entrepreneurial firm creation, resulting in greater aggregate firm marketpower. This result is supported by time series evidence obtained from the estimationof a structural panel VAR with OECD data from eight countries.

Keywords: Wealth inequality; market power; growth; Schumpeterian; endogenous growth; entrepreneur (search for similar items in EconPapers)
JEL-codes: E21 E22 L12 O31 O33 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2021-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-cwa, nep-ent, nep-fdg, nep-gro, nep-ind, nep-mac, nep-ore and nep-sbm
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