Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 2000 erstellt
Beschreibung:
This paper analyzes a model in which the risk associated with entrepreneurial activity implies that the amount of such activity is procyclical and results in both amplification and intertemporal propagation of productivity shocks. In the model risk averse agents choose between a riskless project and a risky project with higher expected return ('the entrepreneurial activity'). Agents who choose the entrepreneurial activity need to bear part of the project-specific risk for incentive reasons. Under the optimal contract more agents become entrepreneurs when productivity is high, because agents are more willing to bear risk and, in fact, need to bear less risk for incentive reasons. Thus, entrepreneurial activity amplifies productivity shocks and can be correlated across time even if productivity shocks are independent. In particular, propagation can be asymmetric and result in 'sharp' recessions. Furthermore, cross-sectional heterogeneity can be countercyclical, i.e., inequality may rise in recessions