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Dynastic Accumulation of Wealth

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  • Degan, Arianna
  • Thibault, Emmanuel
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    Abstract

    Why do some dynasties maintain the fortune of their founders while others completely squander it in few generations? To address this question, we use a simple deterministic microfounded model based on two main elements: the “hunger for accumulation” and the “willingness to exert effort”. Contrary to models with capital market imperfections, our setting points to the crucial role of our two key ingredients, rather than of initial wealth or transitory shocks to wealth or inflation, on the long-run process of wealth accumulation within a family lineage. In addition, in a context with heterogeneous dynasties, we show that our model can provide a novel interpretation for some macroeconomics issues such as the demise of the rich bourgeoisie, class structure, social mobility, and wealthy inequalities. For example it predicts that those who take the effort to innovate and take advantage of new profitable opportunities are agents who are neither too poor nor too rich. Obviously, this simple framework is a great starting point for further empirical analysis.

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    Bibliographic Info

    Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 733.

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    Date of creation: 25 Jul 2012
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    Handle: RePEc:ide:wpaper:26058

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    Keywords: Intergenerational accumulation; Social mobility; Wealth inequality; Spirit of capitalism; Effort choice.;

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