Capital Markets, Information Aggregation and Inequality: Theory and Experimental Evidence
AbstractIn most industrialized economies, financial wealth is distributed far more unequally than income. According to Wolff (2007) more than half of the American households possess almost no productive capital while realizing about 20 percent of national income. This mismatch poses a problem for the efficient aggregation of consumer needs on capital markets. Individuals use information about their own preferences as consumers to identify profitable investments. Under certain conditions, this behaviour efficiently matches future demand with productive capacity, thus replacing future markets for consumer goods. However, when wealth is distributed too unequally, capacity cannot match consumer needs. I present some first experimental evidence in favour of consumption driven investment behaviour based on real portfolio choices and self-reported preferences about consumer goods.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6750.
Date of creation: Mar 2008
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Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-EXP-2008-04-12 (Experimental Economics)
- NEP-PKE-2008-04-12 (Post Keynesian Economics)
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