We propose a model in which risk, at both the micro and the macro levels, is endogenous. In the model, each firm can choose the mean and the variance of its productivity process, as well as how it covaries with the productivity of other firms. To study the aggregate impact of these decisions, we embed the firms into an otherwise standard production network economy. Through their impact on risk-taking decisions, distortions such as taxes and markups can make GDP more volatile in equilibrium. The theory also predicts that the productivity of larger firms and those with smaller markups is less volatile and less correlated with aggregate productivity. We find support for these predictions in the data. In a calibrated version of the model, removing distortions significantly reduces GDP volatility.