The Origin of Risk

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ID: 330694
2026
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Abstract
Abstract We propose a tractable model in which risk, at both the micro and macro levels, is endogenous and driven by incentives. In the model, each firm chooses the mean and the variance of its productivity process, as well as how it covaries with the productivity of other firms. Aggregate risk arises when firms select productivity processes that are correlated with one another. The theory predicts that larger firms and those with lower markups are less volatile and less correlated with aggregate productivity. We find support for these predictions in the data. Through their impact on risk-taking decisions, distortions such as taxes and markups can make GDP more volatile in equilibrium. In a calibrated version of the model, removing distortions significantly reduces GDP volatility.
Reference Key
openalex_W7214928968 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Alexandr Kopytov, Mathieu Taschereau-Dumouchel, Zebang Xu
Journal the quarterly journal of economics
Year 2026
DOI
10.1093/qje/qjag048
URL
https://doi.org/10.1093/qje/qjag048
Keywords Keywords not found

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