Entrepreneurial rates of return and wealth inequality

This paper confronts a model of entrepreneurship and wealth inequality with empirical patterns on rates of return across the wealth distribution. We find the quantitative model implies rates of return largely consistent with the data. Rates of return to business wealth are high, heterogeneous, negatively correlated with net worth, and persistent. Both dispersion in marginal products of capital and leverage are important for explaining the patterns in rates of return along the wealth distribution. Heterogeneous abilities explain a large portion of cross-sectional dispersion and drive persistence in individual returns.