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Endogenous persistent inequality

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  • FALL, Falilou
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    Abstract

    The purpose of this paper is to demonstrate that inherited human capital is a powerful vector of inequality formation and persistence, irrespective of its links with financial wealth endowment. This paper argues that the agents who inherit a low level of human capital bear a greater utility cost in their educational investment and that there are different profiles of returns on human capital within the economy. These two arguments are sufficient to generate an endogenous formation of workers' and entrepreneurs' groups and a continuum of steady states withinequalit y. Allowing for self-employment in the model generates the possibility of equality at equilibrium in addition to the inequality equilibrium withth e emergence of a middle class.

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    Bibliographic Info

    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005094.

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    Date of creation: 00 Jan 2005
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    Handle: RePEc:cor:louvco:2005094

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    Related research

    Keywords: endogenous inequality; human capital; occupational choice; education;

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    1. Oded Galor & Omer Moav, 2006. "Das Human-Kapital: A Theory of the Demise of the Class Structure," Review of Economic Studies, Wiley Blackwell, vol. 73(1), pages 85-117, 01.
    2. Gary S. Becker & Nigel Tomes, . "Human Capital and the Rise and Fall of Families," University of Chicago - Population Research Center 84-10, Chicago - Population Research Center.
    3. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
    5. Matsuyama, Kiminori, 2000. "Endogenous Inequality," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 743-59, October.
    6. Dilip Mookherjee & Debraj Ray, 2000. "Contractual Structure and Wealth Accumulation," Boston University - Institute for Economic Development 107, Boston University, Institute for Economic Development.
    7. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
    8. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
    9. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
    10. 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.
    11. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
    12. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
    13. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
    14. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
    15. Dominique Rouault, 2001. "Les revenus des indépendants et dirigeants : la valorisation du bagage personnel," Économie et Statistique, Programme National Persée, vol. 348(1), pages 35-59.
    16. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
    17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:
    1. Growiec, Katarzyna & Growiec, Jakub, 2009. "Social Capital, Trust, and Multiple Equilibria in Economic Performance," MPRA Paper 19518, University Library of Munich, Germany.

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