Persistent heterogeneous returns and top end wealth inequality

Cao, Dân; Luo, Wenlan

doi:10.1016/j.red.2017.10.001

Cited by 49 publications

(51 citation statements)

References 37 publications

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“…Notice also that, when Φ is a log-normal distribution,H is a convolution of a Pareto distribution and a log-normal distribution analyzed in Reed (2001), and more recently, Cao and Luo (2017) and Sager and Timoshenko (2018). Therefore, we offer an alternative micro-foundation of this convolution distribution with endogenous establishment growth rate, relative to the micro-foundation in Reed (2001) with exogenous growth rate.…”

Section: Distributions For One-type Economymentioning

confidence: 99%

“…Similar, using the procedure from Gabaix et al (2016) and Cao and Luo (2017), the Pareto tail index of the distribution of establishment sizes is given by…”

Section: Distributions For Two-type Economymentioning

confidence: 99%

“…The derivation of (27) follows closely Cao and Luo (2017) for wealth distribution with persistent heterogeneous returns.…”

Section: Appendixmentioning

confidence: 99%

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Firm Growth Through New Establishments

et al. 2019

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This paper analyzes firm growth along two margins: the extensive margin (adding more establishments) and intensive margin (adding more workers per establishment). We utilize administrative datasets to document the behavior of these two margins in relation to changes in the U.S. firm size distribution. Between 1990 and 2015, we find that the significant increase in average firm size was driven primarily by the expansion along the extensive margin, particularly in superstar firms. We develop a general equilibrium model of endogenous innovation that features both extensive and intensive margins of firm growth. We estimate the model to uncover the fundamental forces that caused the changes over this time period through the lens of our model. We find that, over time, the cost of innovations that lead to new establishments has declined for firms who are innovative in that dimension. Meanwhile, the duration that a firm can enjoy high growth through such innovation became shorter, and firm entry became more costly.

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Section: Distributions For One-type Economymentioning

confidence: 99%

“…Similar, using the procedure from Gabaix et al (2016) and Cao and Luo (2017), the Pareto tail index of the distribution of establishment sizes is given by…”

Section: Distributions For Two-type Economymentioning

confidence: 99%

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Firm Growth Through New Establishments

et al. 2019

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“…Krusell and Smith (1998) view households as dynasties and justify random discounting as genetic differences in the population that are passed on imperfectly from parents to children. Random discounting may also be viewed as heterogeneity in the wealth portfolio returns due to differences in financial sophistication or entrepreneurship (Calvet et al, 2007;Cao and Luo, 2017). Yet another possible interpretation is the liquidity shocks during the lifetime of agents (Diamond and Dybvig, 1983;Geanakoplos and Walsh, 2017).…”

Section: Introductionmentioning

confidence: 99%

“…Recent applications of the perpetual youth model in the context of power law distributions can be found in Toda (2014), Toda and Walsh (2015, 2017a), Arkolakis (2016),Benhabib et al (2016),,Nirei and Aoki (2016),Aoki and Nirei (2017),Cao and Luo (2017), andKasa and Lei (2017).…”

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confidence: 99%

Wealth distribution with random discount factors

Toda

2019

Journal of Monetary Economics

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It is well-known that empirical wealth distributions have Pareto tails. To explain this fact, the quantitative macro literature has occasionally assumed that agents have random discount factors. However, the fact that random discounting generates Pareto tails is a 'folk theorem' that has been shown only in very particular settings (e.g., i.i.d. environment or affine rule-of-thumb consumption rule). Using a highly stylized but fully specified heterogeneous-agent dynamic general equilibrium model of consumption and savings with an arbitrary Markovian dynamics for the discount factor, I prove that the upper and lower tails of the wealth distribution obey power laws and characterize the Pareto exponents. I also discuss a numerical example and show that there is no clear relationship between the return on wealth and inequality and that the Pareto exponent is highly sensitive to the persistence of the discount factor process.

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A Becker–Tomes model with investment risk

Zhu

2018

Econ Theory

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Persistent heterogeneous returns and top end wealth inequality

Cited by 49 publications

References 37 publications

Firm Growth Through New Establishments

Firm Growth Through New Establishments

Wealth distribution with random discount factors

A Becker–Tomes model with investment risk

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