Enterprise, Inequality and Economic Development

We characterize an equilibrium development process driven by the interactionof the distribution of wealth with credit constraints and the distributionof entrepreneurial skills. When efficient entrepreneurs are relativelyabundant, a "traditional" development process emerges in whichthe evolution of macroeconomic variables accord with empirical regularitiesand income inequality traces out a Kuznets curve. If, instead, efficiententrepreneurs are relatively scarce, the model generates long-run"distributional cycles" driven by the endogenous interactionbetween credit constraints, entrepreneurial efficiency and equilibriumwages.