Asset bubbles, entrepreneurial risks, and economic growth

Takeo Hori and Ryonghun Im

Journal of Economic Theory, 2023, vol. 210, issue C

Abstract: Entrepreneurs are exposed to large uninsured risks, which may discourage them from creating productive assets. This may generate productive asset shortages and stimulate speculative demand for bubbles. This study introduces uninsured entrepreneurial risks into a textbook growth model with infinitely-lived agents. In the model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree is high, bubbles promote growth because of the wealth effect. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify a small and temporal negative technology shock.

Keywords: Asset bubbles; Idiosyncratic risks; Growth effect; Welfare analysis (search for similar items in EconPapers)
JEL-codes: E21 E23 E44 G01 G11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:210:y:2023:i:c:s0022053123000595

DOI: 10.1016/j.jet.2023.105663

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