THE IMPACT OF CAPITAL AND INCOME RISK ON LONG-RUN GROWTH

The paper analyzes the effects of individual--specific and economy--wide productivity shocks on intertemporal decision--making of risk averse agents. We focus especially on the consequences for long--run growth. By contrasting the most widely used models of modern growth theory, namely the AK-model and the learning by doing-model, it is shown that not only the degree of risk aversion but also the source of income as measured by the factor income distribution is crucial for the impact of the stochastic disturbances. In the presence of a pure capital risk, growth and welfare effects are different from those arising when agents are subject to capital and income risk.

On the Effects of Redistribution on Growth and Entrepreneurial Risk-Taking

This paper investigates the redistributive effects of taxation on occupational choice and growth. We discuss a twoñsector economy in the spirit of Romer (1990). Agents engage in one of two alternative occupations: either selfñemployment in an intermediate goods sector characterized by monopolistic competition, or employment as an ordinary worker in this sector. Entrepreneurial prots are stochastic. The occupational choice under risk endogenizes the number of rms in the intermediate goods industry. While the presence of entrepreneurial risk results in a suboptimally low number of rms and depresses growth, nonñlinear tax schemes are partly capable of compensating the negative by effects by ex post providing a social insurance.OLG, endogenous growth, entrepreneurship, occupational choice, redistributive taxation

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. 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 borrowing constraints, from an unrestrained to a perfectly constrained economy. In our baseline model, 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 the degree of income persistence and feedback effects in general equilibrium, where optimal firm sizes and the demand for credit are determined endogenously.CGE, occupational choice, financial constraints, wealth distribution

Endogenous Redistributive Cycles An Overlapping Generations Approach to Social Conflict and Cyclical Growth

This paper discusses the emergence of endogenous redistributive cycles in a stochastic growth model with incomplete asset markets and heterogeneous agents, where agents vote on the degree of progressivity in the tax-transfer-scheme. The model draws from Bénabou (1996) and ties the bias in the distribution of political power to the degree of inequality in the society, thereby triggering redistributive cycles which then give rise to a nonlinear, cyclical pattern of savings rates, growth and inequality over time.Inequality, growth, political cycles, redistribution, Hopf bifurcation

Borrowing Constraints, Entrepreneurial Risks, and the Wealth Distribution in a Heterogeneous Agent Model

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 the entire range of borrowing constraints, from complete markets to a perfectly constrained economy. In our baseline model, we find substantial gains in output, welfare, and wealth equality associated with relaxing the constraints, but argue that it might also prove worthwhile to examine the marginal gains from credit market improvements. Interestingly, the amount of entrepreneurial activity and social mobility increases if borrowing constraints become more tight. These results can be attributed to the general equilibrium nature of our approach, where optimal firm sizes and the demand for credit are determined endogenously. The comparative static results on the entrepreneurship rate and social mobility respond sensitively to a change in income persistence.DSGE model, wealth distribution, occupational choice, borrowing constraints

An Open Invitation: VIA as a Field of Research

Vocal-Instrumentral-Ensembles, abbreviated as VIA, were a distinct format of late-soviet popular culture. Music groups carrying this label enjoyed tremendous success from the mid-1960s until the mid-1980s and have since become the object of a nostalgic revival. As a research subject, they offer important insight into cultural politics and the music industry of their time, as well as movements of negotiation, popularisation and canonisation of new sounds, aesthetics and performance techniques. This issue invites scholars to take a more active interest in the VIA’s musical and institutional qualities and offers first explorations into this multifaceted phenomenon

Labor Supply and Growth Effects of Environmental Policy under Technological Risk

This paper analyzes the effects of technological risk on long-run growth when labor supply is elastic and production gives rise to a pollution externality. For the social planner as well as for the market economy we show that the randomness of production as well as the endogeneity of labor supply matter with respect to the equilibrium solution. The direction in which changes in the model parameters as well as changes of policy instruments influence labor supply and growth depends crucially on the volatility of output

Borrowing Constraints, Entrepreneurial Risks, and the Wealth Distribution in a Heterogeneous Agent Model

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 the entire range of borrowing constraints, from complete markets to a perfectly constrained economy. In our baseline model, we find substantial gains in output, welfare, and wealth equality associated with relaxing the constraints, but argue that it might also prove worthwhile to examine the marginal gains from credit market improvements. Interestingly, the amount of entrepreneurial activity and social mobility increases if borrowing constraints become more tight. These results can be attributed to the general equilibrium nature of our approach, where optimal firm sizes and the demand for credit are determined endogenously. The comparative static results on the entrepreneurship rate and social mobility respond sensitively to a change in income persistence

Discrete Public Goods: Contribution Levels and Learning as Outcomes of an Evolutionary Game

This paper examines the learning dynamics of boundedly rational agents, who are asked to contribute to a discrete public good. In an incomplete information setting, we discuss contribution games and subscription games. The theoretical results on myopic best response dynamics implying striking differences between strategies played in the two games are confirmed by simulations, where the learning process is modeled by an Evolutionary Algorithm. We show that the contribution game even aggravates the selective pressure leading towards the non-contributing equilibrium, thereby supporting results from laboratory experiments. In contrast to this, the subscription game removes the 'fear incentive', implying a higher percentage of successful provisions over time.bounded rationality, evolutionary games, evolutionary algorithms, learning, public goods

The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions

Clemens C, Heinemann M. The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions. Working Papers in Economics and Management. Vol 21-2013. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2013.This paper examines the consequences of international financial integration in a two–sector heterogeneous–agent dynamic general equilibrium model of occupational choice with financial constraints and idiosyncratic risks. We discuss the macroeconomic and distributional effects of financial market integration for small economies which differ only with respect to the tightness of constraints on the domestic credit market. The results contribute to an explanation for the ‘Lucas paradox’, i.e. the empirical observation of capital flowing from poor to rich countries, where lending countries are characterized by tighter domestic constraints and lower capital returns. Capital market liberalization goes along with adjustments towards the world return. Capital–exporting countries experience an increase in GNP, whereas the GDP effect is of ambiguous sign and driven by the tightness of the domestic credit market. Countries with less tight constraints or unlimited access to external business financing loose throughout integration due to a decline in aggregate output and a very unequal distribution of welfare gains and losses in the underlying heterogeneous–agent economy. We find that international integration is only beneficial f or economies where financial constraints on entrepreneurial activity are very tight. Here, we observe an accumulation–driven rise in the entrepreneurship rate, overall positive output effects and welfare gains for all members of society