4. Other empirical implications? High-RTS firms:
- Grow faster,
- Pay higher wages,
- Are owned by wealthier households.
These have major implications for inequality and optimal policy! With Hubmer, Chan, Salgado, and @guangbinhong.bsky.social
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3b. Intuitively, a high-TFP but currently poor entrepreneur can achieve profitability at a small scale, making it easier to grow despite the friction. In contrast, a high-RTS but not immediately profitable business struggles to outgrow the friction, and the entrepreneur may never enter the market.

3a. Should we care? We study the costs of financial frictions when we add RTS heterogeneity into the workhorse model of entrepreneurship. Efficiency losses from financial frictions are more than TWICE as large with RTS differences vs. the traditional calibration with only TFP differences.

2. Are these differences just transitory? Nope! Our 17-year panel shows these differences in returns to scale are super persistent - about 75% of the variation is explained by persistent firm fixed effects. These are deep technological differences.

1. Using data from 🇨🇦&🇺🇸, we find significant differences in higher returns to scale (RTS) across firms within industries.❗The largest firms don't have the highest TFP but operate technologies with much higher RTS❗The higher RTS is mainly explained by higher output elasticities of intermediate inputs.