In this paper we document the relationship between idiosyncratic risk and non productive expenditures at the rm level from the Kauman Firm Survey. We then propose a model of entrepreneurial activity subject to nancial constraints where rms engage in borrowing to nance capital and wages, but also...

We develop a theory of total factor productivity with heterogeneous firms, to explain differences in human capital across countries. In our model, firms operate in an economy with capital markets imperfections and costs of creating and operating in the formal sector. These distortions give rise...