Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
The transmission channel of asset bubbles is studied in a heterogeneous firm model with endogenous entry and exit. We highlight the effects of asset bubbles along the extensive margin: the aggregate bubble can boost real economic activities by affecting firms’ entry and exit decisions. Moreover, the model predicts the selection effect of bubbles: bubbly firms—firms with asset bubbles—are less productive than bubble-less firms. Finally, we provide empirical evidence that supports bubbles’ effects along the extensive margin.