Endogenous Market Structure, Occupational Choice, and Growth Cycles

We model an industry that supplies intermediate goods in a growing economy. Agents can choose whether to provide labor or to become firm owners and compete in the industry. The idea that entry is determined through occupational choice has major implications for the economy's dynamics. Particularly, the results show that economic dynamics are governed by endogenous volatility in the determination of both the number of industry entrants and in the growth rate of output. Consequently, we argue that occupational choice and the structural characteristics of the endogenous market structure can act as both the impulse source and the propagation mechanism of economic fluctuations.