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A NOTE ON ENTREPRENEURIAL RISK, CAPITAL MARKET IMPERFECTIONS, AND HETEROGENEITY

Published online by Cambridge University Press:  04 March 2010

Yulei Luo*
Affiliation:
University of Hong Kong
Liutang Gong
Affiliation:
Peking University
Heng-fu Zou
Affiliation:
The World Bank, CUFE, Shenzhen University and Wuhan University
*
Address correspondence to: Yulei Luo, School of Economics and Finance, The University of Hong Kong, Hong Kong; e-mail: yluo@econ.hku.hk.

Abstract

Empirical evidence shows that entrepreneurs hold a large fraction of wealth, have higher saving rates than workers, and face substantial uninsurable entrepreneurial and investment risks. This paper constructs a heterogeneous-agent general equilibrium model with uninsurable entrepreneurial risk and capital-market imperfections to explore the implications of uninsurable entrepreneurial risk for wealth distribution and aggregate activity in an incomplete market economy. It is shown that entrepreneurial risk can substantially affect both the wealth distribution and the macroeconomy.

Type
Notes
Copyright
Copyright © Cambridge University Press 2010

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