Entrepreneurship, Frictions, and Wealth

Marco Cagetti and Mariacristina De Nardi ()

Journal of Political Economy, 2006, vol. 114, issue 5, pages 835-870

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.

Date: 2006
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Working Paper: Entrepreneurship, frictions, and wealth (2005)
Working Paper: Entrepreneurship, frictions and wealth (2003)
Working Paper: Entrepreneurship, frictions, and wealth (2003)
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