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Inequality, Incomplete Contracts, and the Size Distribution of Business Firms

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Author Info
Thomas Gall () (Economic Theory II, University of Bonn)

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Abstract

This 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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Publisher Info
Paper provided by JEPS in its series JEPS Working Papers with number 05-004.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 60 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:jep:wpaper:05004

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Web page: http://jeps.repec.org/

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Related research
Keywords: Intrafirm bargaining; matching; firm size distribution;

Find related papers by JEL classification:
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

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    Other versions:
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    Other versions:
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    Other versions:
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