On entrepreneurial risk-taking and the macroeconomic effects of financial constraints
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On entrepreneurial risk-taking and the macroeconomic effects of financial constraints. / Clemens, Christiane ; Heinemann, Maik.
In: Journal of Economic Dynamics and Control, Vol. 34, No. 9, 10.2010, p. 1610-1626.Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - On entrepreneurial risk-taking and the macroeconomic effects of financial constraints
AU - Clemens, Christiane
AU - Heinemann, Maik
PY - 2010/10
Y1 - 2010/10
N2 - This paper deals with credit market imperfections and idiosyncratic risks in a two-sector heterogeneous agent dynamic general equilibrium model of occupational choice. We focus especially on the effects of tightening financial constraints on macroeconomic performance, entrepreneurial risk-taking, and social mobility. Contrary to many models in the literature, our comparative static results cover a broad range for financial constraints, from an unrestrained to a perfectly constrained economy. We find substantial gains in output, welfare, and wealth equality associated with credit market improvements. The marginal gains from relaxing constraints are largest for empirically relevant debt-equity ratios. Interestingly, the entrepreneurship rate and social mobility respond non-monotonically to a change in the tightness of financial constraints. The results crucially depend on feedback effects in general equilibrium, where optimal firm sizes and the demand for credit are endogenously determined.
AB - This paper deals with credit market imperfections and idiosyncratic risks in a two-sector heterogeneous agent dynamic general equilibrium model of occupational choice. We focus especially on the effects of tightening financial constraints on macroeconomic performance, entrepreneurial risk-taking, and social mobility. Contrary to many models in the literature, our comparative static results cover a broad range for financial constraints, from an unrestrained to a perfectly constrained economy. We find substantial gains in output, welfare, and wealth equality associated with credit market improvements. The marginal gains from relaxing constraints are largest for empirically relevant debt-equity ratios. Interestingly, the entrepreneurship rate and social mobility respond non-monotonically to a change in the tightness of financial constraints. The results crucially depend on feedback effects in general equilibrium, where optimal firm sizes and the demand for credit are endogenously determined.
KW - Economics
KW - CGE
KW - Occupational choic
KW - Financial constraints
KW - Wealth distribution
UR - http://www.scopus.com/inward/record.url?scp=77956786783&partnerID=8YFLogxK
U2 - 10.1016/j.jedc.2010.06.015
DO - 10.1016/j.jedc.2010.06.015
M3 - Journal articles
VL - 34
SP - 1610
EP - 1626
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
IS - 9
ER -