This paper presents a dynamic general equilibrium model with heterogeneous firms and entrepreneur's portfolio choice. We analytically show that this model generates the Pareto distribution of top income earners and Zipf's law of firms at the steady state. The differential equation for the...

We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets as well as their own firms' risky stocks,...

This paper develops a simple accounting framework that measures the effect of resource misallocation on aggregate productivity. This framework is based on a multi-sector general equilibrium model with sector-specific frictions in the form of taxes on sectoral factor inputs. Our framework is...

Why did the Japanese economy stagnate before World War II, how did it achieve rapid economic growth after the war, and why did it stagnate again after the 1970s? To answer these questions, I developed a two-country trade model with technology transfer, where rms in the two countries compete in a...

Why did the Japanese economy stagnate before World War II, how did it achieve rapid economic growth after the war, and why did it stagnate again after the 1970s? To answer these questions, I developed a two-country trade model with technology transfer, where firms in a developed country (the...

This paper examines the extent to and the conditions under which resource misallocation negatively affects aggregate productivity in a model of heterogeneous firms to the highest degree. I analytically derive the minimum aggregate total factor productivity (TFP) under resource misallocation,...

Using a simple framework, I reexamine the Hayashi and Prescott hypothesis (2006) that a barrier to labor mobility that maintained high agricultural employment was a cause of the stagnation in the prewar Japanese economy. I find that the labor misallocation between the agricultural and...

In the U.S., the objective of consumer price index (CPI) measurement is to measure the cost of living. However, the current CPI or, in other words, cost of living index (COLI) measures the cost of living in a static optimization problem. This paper proposes a new method to construct a dynamic...

This paper develops a simple accounting framework that measures the effect of resource misallocation on aggregate productivity. This framework is based on a multi-sector general equilibrium model with sector-specific frictions in the form of taxes on sectoral factor inputs. Our framework is...

This paper suggests that the difference in the Theil indices of inequality between two economies approximately measures the relative loss of aggregate productivity caused by distortions in labor allocation. Moreover, the Theil index itself can be interpreted approximately as the possible maximum...