Inequality, Incomplete Contracts, And The Size Distribution Of Business Firms
AbstractThis article analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium, wealth inequality induces a heterogeneous distribution of firm sizes, allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of firm-size distributions in developing countries. The model can encompass a nonmonotonic relationship between aggregate output and inequality. It turns out that an inflow of capital may indeed decrease output in absolute terms. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 51 (2010)
Issue (Month): 2 (05)
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Other versions of this item:
- Thomas Gall, 2005. "Inequality, Incomplete Contracts, and the Size Distribution of Business Firms," JEPS Working Papers 05-004, JEPS.
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
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