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Imperfect Competition and Growth with Entrepreneurial Risk

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  • Clemens Christiane

    (University of Magdeburg,Magdeburg, Germany)

Abstract

This paper analyzes an overlapping generations endogenous growth model of occupational choice under risk in a two-sector economy with intermediate and final goods. Agents choose between business ownership in the monopolistically competitive intermediate goods industry or employment as a worker in this sector. Firm-specific profits are stochastic. Occupational choice under risk endogenizes the number of firms and products in the intermediate goods industry. The analysis shows that economic performance and growth both depend on the entrepreneurship rate and are inefficiently low compared with an economy with perfect markets for pooling risks. Monopolistic competition partly offsets the negative income effects from a too low level of entrepreneurial risk-taking.

Suggested Citation

  • Clemens Christiane, 2008. "Imperfect Competition and Growth with Entrepreneurial Risk," German Economic Review, De Gruyter, vol. 9(2), pages 180-206, May.
    • Handle: RePEc:bpj:germec:v:9:y:2008:i:2:p:180-206
    DOI: 10.1111/j.1468-0475.2008.00430.x
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    Cited by:

    1. Clemens, Christiane & Heinemann, Maik, 2010. "On entrepreneurial risk-taking and the macroeconomic effects of financial constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1610-1626, September.
    2. Clemens Christiane, 2009. "Stochastic Growth and Factor Income Risk," German Economic Review, De Gruyter, vol. 10(4), pages 422-447, December.

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