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Article
Credit Crunches and Credit Allocation in a Model of Entrepreneurship
Review of Economic Dynamics (2015)
  • Marco Bassetto, University College London
  • Marco Cagetti
  • Mariacristina De Nardi, University College London
Abstract

We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.

Keywords
  • Credit crunches,
  • Credit allocation,
  • Entrepreneurship,
  • Borrowing constraints,
  • Wealth inequality
Publication Date
2015
Citation Information
Marco Bassetto, Marco Cagetti and Mariacristina De Nardi. "Credit Crunches and Credit Allocation in a Model of Entrepreneurship" Review of Economic Dynamics (2015)
Available at: http://works.bepress.com/bassetto/19/