Abstract;
We introduce competitive creative destruction into a standard incomplete-markets (Bewley-Hugget-Aiyagari) model, and study the interaction between the cross-sectional wealth distribution and endogenous growth. A higher growth rate (e.g., induced by a higher probability of successful innovation) has two opposing effects on the wealth distribution. On one hand, a higher interest rate makes the wealth distribution more skewed, as the higher rate of return from investment favors the asset-rich households. On the other hand, a higher expected average income in the future reduces the precautionary saving motives and thus makes the wealth distribution less skewed. Preliminary results suggest that, under standard parameters, the two effects roughly offset each other, leaving the steady-state distribution of wealth largely unchanged.
