We characterize an equilibrium development process driven by the interaction of the distribution of wealth with credit constraints and the distribution of entrepreneurial skills. When efficient entrepreneurs are relatively abundant, a "traditional" development process emerges in which the...

When several investors with different risk aversions trade competitively in a capital market, the allocation of wealth fluctuates randomly between them and acts as a state variable against which each market participant will want to hedge. This hedging motive complicates the investors' portfolio...