Investment composition and productivity with heterogeneous entrepreneurs

► The effects of financier patience on total factor productivity and macro development are studied. ► I show a channel that could make rising financier patience counterproductive. ► Heterogeneity in entrepreneurial willingness to invest long-term determines the effects of financier patience. ► When entrepreneurs are heterogeneous financier patience generates a sea-saw effect: Rising financier patience retards capital deepening while stimulating the allocation efficiency of capital. ► When heterogeneity is large enough retardation of capital deepening effect dominates the rise in allocation efficiency of capital. This paper develops an overlapping generations model of entrepreneurship to analyze the effects of financier patience on aggregate productivity of capital and macroeconomic development. The purpose of the enquiry is to show that while limited financier patience constrains the supply of investable funds allocated at productive long-term entrepreneurial projects and aggregate productivity, financial markets that favor short-term lending do not necessarily retard steady state output. I show that this potential non-linear effect of financier patience exists if entrepreneurial sector of the society consists of economic agents with heterogeneous interests in adopting long-term investment projects.