Riskiness, endogenous productivity dispersion and business cycles

In the data, cross-sectional productivity dispersion is countercyclical at both the plant level and the firm level, see e.g. Bloom (2009). I incorporate a firm׳s choice of risk level into a model of firm dynamics with real business cycle features to explain this empirical finding both qualitatively and quantitatively. In the model, in every period, each firm chooses the investment amount and the risk level associated with a production project...