Entrepreneurial ability, income distribution, and international trade

Abstract

This paper develops a two-sector model in which the firms in one sector are heterogeneous due to differences in the level of ability between entrepreneurs. Changes in prices lead to entry or exit of marginal firms and changes in the size of infra-marginal firms. The effects of endowment changes and output price changes are shown to depend on factor intensities of marginal and infra-marginal firms. Conflicts between entrepreneurs may arise over commercial policies if factor intensities differ sufficiently in the heterogeneous sector.