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Contractual Structure and Wealth Accumulation

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Author Info
Dilip Mookherjee
Debraj Ray

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Abstract

Can historical wealth distributions affect long-run output and inequality despite "rational" saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and "history" does not matter eventually.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 4 (September)
Pages: 818-849
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Handle: RePEc:aea:aecrev:v:92:y:2002:i:4:p:818-849

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  1. Legros, Patrick & Newman, Andrew & Proto, Eugenio, 2006. "Smithian Growth through Creative Organization," CEPR Discussion Papers 5709, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Hoff, Karla & Sen, Arijit, 2004. "Homeownership, community interactions, and segregation," Policy Research Working Paper Series 3316, The World Bank. [Downloadable!]
    Other versions:
  3. Maristella Botticini & Zvi Eckstein, 2006. "Path Dependence and Occupations," Carlo Alberto Notebooks 3, Collegio Carlo Alberto. [Downloadable!]
    Other versions:
  4. Kaniska Dam & David Perez-Castrillo, 2003. "The Principal-Agent Matching Market," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  5. MICHAEL R. CARTER & Julian May, 1999. "One Kind of Freedom: Poverty Dynamics in Post-Apartheid Africa," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 427, Wisconsin-Madison Agricultural and Applied Economics Department. [Downloadable!]
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    Other versions:
  7. Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers 911, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  8. V. Bhaskar, 2002. "Relative Performance Evaluation and Limited Liability," Economics Discussion Papers 550, University of Essex, Department of Economics. [Downloadable!]
  9. Dilip Mookherjee & Debraj Ray, 2000. "Persistent Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-108, Boston University - Department of Economics, revised Oct 2002. [Downloadable!]
    Other versions:
  10. Maitreesh Ghatak & Massimo Morelli & Tomas Sjostrom, 2002. "Credit Rationing, Wealth Inequality, and Allocation of Talent," Economics Working Papers 0026, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  12. Falilou Fall, 2005. "Endogenous persistent inequality," Cahiers de la Maison des Sciences Economiques v05059, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  13. Maitreesh Ghatak & Massimo Morelli & Tomas Sjostrom, 2002. "Credit Rationing, Wealth Inequality, and Allocation of Talent," STICERD - Theoretical Economics Paper Series 441, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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