Inequality , Incomplete Contracts , and the Size Distribution of Business Firms ∗
نویسنده
چکیده
This paper analyzes the effects of intra-firm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In a one-sided matching equilibrium endowment inequality induces a heterogenous distribution of firm sizes allowing for firms both too small and too large in terms of efficiency. The findings connect well to empirical facts such as the missing middle of size distributions in developing countries. The model identifies a number of properties of the firm size distribution with respect to the wealth distribution and encompasses a non-monotonic relationship between aggregate wealth and inequality.
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