Credit crunches and credit allocation in a model of entrepreneurship

Marco Bassetto, Marco Cagetti, Mariacristina De Nardi

Research output: Contribution to journalArticlepeer-review

18 Scopus citations


We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.

Original languageEnglish (US)
Pages (from-to)53-76
Number of pages24
JournalReview of Economic Dynamics
Issue number1
StatePublished - Jan 1 2015
Externally publishedYes


  • Borrowing constraints
  • Credit allocation
  • Credit crunches
  • D58
  • E21
  • E22
  • E32
  • E44
  • E62
  • Entrepreneurship
  • Wealth inequality

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