On Entrepreneurial Risk-taking And The Macroeconomic Effects Of Financial Constraints

This paper deals with credit market imperfections and idiosyncratic risks in a two - sector heterogeneous agent dynamic general equilibrium model of occupational choice. The authors 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, the comparative static results cover a broad range for borrowing constraints, from an unrestrained to a perfectly constrained economy. In the baseline model, they find substantial gains in output, welfare, and wealth equality associated with credit market improvements.