The Aggregate Costs of Uninsurable Business Risk by Corina Boar, Denis Gorea, Virgiliu Midrigan published by BIS (10/2025).
We investigate the macroeconomic costs associated with private businesses being unable to insure against sharp fluctuations in their profits. We use firm-level financial data from the Orbis database to show that firms experience large, unexpected and temporary swings in output that are not accompanied by changes in production inputs, like the wage bill. This means their labour costs don’t fall quickly enough when output suddenly drops. We interpret this evidence using an economic model of entrepreneurial dynamics that incorporates both uninsurable risk and limits on borrowing.
