Money with idiosyncratic uninsurable returns to capital

This paper extends thr income fluctuations problem to an economy with endog enous growth. Individuals. instead of owning a stream of endowments, accumu late capital with an investment irreversibility constraint and lace uninsur able idiosyncratic risks to the return to capital. Money provides both a ri sk diversification and a liquidity role. Balanced growth paths exist despit e the increasing dispersion of the wealth distribution. The return to money cannot be equated to the social return to capital unless the government ow ns the entire capital stock with idiosyncratic risk and it it capable of op erating this stock as efficiently as private agents can. Journal of Economi c Literature Classification Numbers: E31, E42, E58. (C) 2000 Academic Press .