Persistent inequality with endogenous rate of time preference
AbstractPurpose – The purpose of this paper is to provide a theory that can explain the persistence of inequality in an economy where household agents are identical in terms of their preferences and have access to the same production technology. Design/methodology/approach – An overlapping generations model is developed where agents are imperfectly altruistic and face uncertain lifetimes. The rate of time preference of an agent depends on her probability of survival which is increasing in her level of consumption. An agent's initial endowment of human capital jointly determines her patience and willingness to accumulate human capital and other productive assets. Findings – It was found that inequality may persist in the economy as a result of endogenous rate of time preference. Agents with low initial endowment of human capital are impatient and choose not to invest in human capital. Agents with initial endowment of human capital above a certain threshold choose to invest in human capital as they expect to survive long enough to reap the benefits of their investment. Originality/value – This paper add to the present literature by providing an alternative mechanism to explain the persistence of inequality. In future research this model framework can be used to evaluate the impact of alternative government and tax policies on the long run distributions of income and wealth.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Indian Growth and Development Review.
Volume (Year): 1 (2008)
Issue (Month): 2 (December)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jade Turvey).
If references are entirely missing, you can add them using this form.