Template-Type: ReDIF-Paper 1.0
Author-Name: Corina Boar
Author-X-Name-First: Corina
Author-X-Name-Last: Boar
Author-Name: Denis Gorea
Author-X-Name-First: Denis
Author-X-Name-Last: Gorea
Author-Name: Virgiliu Midrigan
Author-X-Name-First: Virgiliu
Author-X-Name-Last: Midrigan
Title: The aggregate costs of uninsurable business risk
Abstract: We use firm-level data to document that private businesses experience large fluctuations in their profit shares. These are due to large, fat-tailed and transitory changes in output that are not fully accompanied by changes in their inputs. We interpret this evidence using a model of entrepreneurial dynamics. Because firms can limit their exposure to risk by operating at a smaller scale, our model predicts large macroeconomic losses from uninsurable business risk, much larger than those stemming from credit constraints. While self-financing allows entrepreneurs to quickly overcome credit constraints, even wealthy entrepreneurs remain considerably exposed to risk.
Creation-Date: 2025-10
File-URL: https://www.bis.org/publ/work1300.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1300.htm
File-Format: text/html
Number: 1300
Keywords: entrepreneurship, risk, credit constraints, misallocation
Classification-JEL: E2, E44, G32
Handle: RePEc:bis:biswps:1300