Inequality, Incomplete Contracts, and the Size Distribution of Business Firms
AbstractThis paper 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 heterogenous 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 size distributions in developing countries. The model identifies a number of properties of the firm size distribution with respect to the wealth distribution and can encompass a non-monotonic relationship between aggregate wealth and inequality.
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Bibliographic InfoPaper provided by JEPS in its series JEPS Working Papers with number 05-004.
Length: 60 pages
Date of creation: Jul 2005
Date of revision:
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Intrafirm bargaining; matching; firm size distribution;
Other versions of this item:
- Thomas Gall, 2010. "Inequality, Incomplete Contracts, And The Size Distribution Of Business Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 335-364, 05.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-BEC-2005-09-29 (Business Economics)
- NEP-DGE-2005-09-29 (Dynamic General Equilibrium)
- NEP-ENT-2005-09-29 (Entrepreneurship)
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