In our model, short-sighted policy-makers choose to subsidize productive entrepreneurs to relax their limited commitments. In the short-run, this policy reallocates capital from unproductive towards productive entrepreneurs, and boosts per-capita income, TFP and capital accumulation. Over time,...

Individuals' time allocation decisions depend on the distribution because the productivity levels of others determine their own chances of improving their productivities through search. The time allocations of everyone in the economy in turn determine the evolution of its productivity...