Market Size, Entrepreneurship, and Income Inequality
Kristian Behrens () and
EERC Working Paper Series from EERC Research Network, Russia and CIS
We develop a monopolistic competition model with two sectors and heterogeneousagents who self-select into entrepreneurship, depending on entrepreneurial ability. Theeffect of market size on the equilibrium share of entrepreneurs crucially hinges on propertiesof the lower-tier utility function for differentiated varieties – its elasticity of substitutionand its Arrow-Pratt index of relative risk aversion. We show that the share of entrepreneurs,and the cutoff for self-selection into entrepreneurship, can increase or decrease with marketsize. The properties of the underlying ability distribution largely determine how incomeinequality changes with market size.
JEL-codes: D43 L11 L13 L26 (search for similar items in EconPapers)
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Working Paper: Market Size, Entrepreneurship, and Income Inequality (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eer:wpalle:14/01e
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