This paper develops a model with both financial and labor market frictions, and jointly analyzes the precautionary behavior of firms and households. Financial frictions generate costly bankruptcy risk for firms and limited insurance against unemployment risk for workers. We solve and simulate a...

We develop a dynamic industry model where financing frictions affect the entry decisions of new firms in the home market, as well as the riskiness of operating firms. These two factors in turn determine a joint endogenous distribution of firms across productivity, volatility and financial...

This paper develops the model of an industry with heterogeneous firms, and studies the effect of financing frictions and bankruptcy risk on innovation and aggregate productivity growth. The model has two main features: i) the technology of firms gradually becomes obsolete. Firms can counter this...

A number of studies show that entrepreneurial households face a large amount of unvidersifiable risk. This paper studies the effects of this risk on the relationship between uncertainty, innovation and investment dynamics. In the first part of the paper we develop a simple model of a risk averse...