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Inequality, Technology, and the Social Contract

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  • Benabou, Roland

    (Princeton U)

Abstract

The distribution of human capital and income lies at the center of a nexus of forces that shape a country's economic, institutional and technological structure. I develop a unified model to analyze these interactions and their growth consequences. First, I identify the key factors that make both European-style "welfare state" and US-style "laissez-faire" social contracts sustainable. I also compare the growth rates of these two politico-economic steady states, which are not Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms' tailoring the flexibility of their production processes to the distribution of workers' skills. Fourth, I examine how institutions also shape the course of technology; thus, a world-wide shift in the technology frontier results in different evolutions of production processes and skill premia across countries with different social contracts. Finally, I ask what joint configurations of technology, inequality and redistributive policy are feasible in the long run, when all three are endogenous. I show how the diffusion of technology leads to the "exporting" of inequality across borders; and how this, in turn, generates spillovers between social contracts that make it more difficult for nations to maintain distinct institutions and social structures.

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Bibliographic Info

Paper provided by Princeton University, Research Program in Political Economy in its series Papers with number 08-15-2005b.

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Date of creation: Oct 2004
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Handle: RePEc:ecl:prirpe:08-15-2005b

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Cited by:
  1. Roland Benabou & Jean Tirole, 2005. "Belief in a Just World and Redistributive Politics," NBER Working Papers 11208, National Bureau of Economic Research, Inc.
  2. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Vollrath, Dietrich, 2008. "Wealth Distribution and the Provision of Public Goods: Evidence from the United States," MPRA Paper 11534, University Library of Munich, Germany.
  4. Bombardini, Matilde & Gallipoli, Giovanni & Pupato, Germán, 2014. "Unobservable skill dispersion and comparative advantage," Journal of International Economics, Elsevier, vol. 92(2), pages 317-329.
  5. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, 09.
  6. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-93, March.
  7. Christopher Crowe, 2004. "Inflation, inequality and social conflict," LSE Research Online Documents on Economics 19932, London School of Economics and Political Science, LSE Library.

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