Entrepreneurship, frictions, and wealth

Marco Cagetti and Mariacristina De Nardi ()

No 322, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Although the role of financial constraints on entrepreneurial choices has received considerable attention, the effects of these constraints on aggregate capital accumulation and wealth inequality are less known. Entrepreneurship is an important determinant of capital accumulation and wealth concentration and, conversely, the distribution of wealth affects entrepreneurial choices in the presence of borrowing constraints. We construct a model that matches wealth inequality very well, for both entrepreneurs and non-entrepreneurs, and find that more restrictive borrowing constraints generate less wealth concentration, but also reduce average firm size, aggregate capital, and the fraction of entrepreneurs. We also find that voluntary bequests are an important channel that allows some high-ability workers to establish or enlarge an entrepreneurial activity: with accidental bequests only, there would be fewer large firms, fewer entrepreneurs, and less aggregate capital, but also less wealth concentration.

Keywords: Saving and investment; Wealth (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ent
Date: 2003
View list of references View citations in EconPapers

Published in Journal of Political Economy> (Vol. 114, No. 5, October 2006, pp. 835-870)

Downloads: (external link)
http://minneapolisfed.org/research/sr/sr322.pdf (application/pdf)

Related works:
Working Paper: Entrepreneurship, frictions, and wealth (2005)
Working Paper: Entrepreneurship, frictions and wealth (2003)
Journal Article: Entrepreneurship, Frictions, and Wealth (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:322

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().