The allocation of talent: finance versus entrepreneurship

No ECO2014/13, Economics Working Papers from European University Institute

Abstract: The rapid growth of the US financial sector has driven policy debate on whether it is socially desirable. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented individuals efficiently match investors with entrepreneurs, but do not internalize the negative effect on the pool of talented entrepreneurs. Thus, the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The model explains the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors.

Keywords: Talent; Financial sector, Matching, Productivity (search for similar items in EconPapers)
JEL-codes: E44 G14 L26 O15 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-ent and nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The Allocation of Talent: Finance versus Entrepreneurship (2022)
Working Paper: The Allocation OF Talent: Finance versus Entrepreneurship (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2014/13

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