Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms’ Market Power (JMP) (link)
This paper examines the effect of wealth concentration on firms’ market power when firm entry is driven by entrepreneurs facing uninsurable idiosyncratic risks. Under greater wealth concentration, households in the lower end of the wealth distribution are more risk averse and less willing (or able) to bear the risk of entrepreneurial activities. This has implications for firm entry, competitiveness, and market power.
I calibrate a Schumpeterian model of endogenous growth with heterogeneous risk averse entrepreneurs competing to catch up with firms. This model is unique in that both household wealth distribution and a measure of firm markup are endogenously determined on a balanced growth path. I find that a spread in the wealth distribution decreases entrepreneurial firm creation, resulting in greater aggregate firm market power. This result is supported by time series evidence obtained from the estimation of a structural panel VAR with OECD data from eight countries.
Nearly Efficient Likelihood Ratio Tests of a Unit Root in an Autoregressive Model of Arbitrary Order (R & R, Econometric Theory), with Michael Jansson and Morten Oørregard Nielsen. (link)
We study large-sample properties of likelihood ratio tests of the unit root hypothesis in an autoregressive model of arbitrary, finite order. Earlier research on this testing problem has developed likelihood ratio tests in the autoregressive model of order one, but resorted to a plug-in approach when dealing with higher-order models. In contrast, we consider the full model and derive the relevant large-sample properties of likelihood ratio tests under a local-to-unity asymptotic framework. As in the simpler model, we show that the full likelihood ratio tests are nearly efficient, in the sense that their asymptotic local power functions are virtually indistinguishable from the Gaussian power envelopes.