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

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  • Thomas Gall

    ()
    (Economic Theory II, University of Bonn)

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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File URL: http://jeps.repec.org/papers/05-004.pdf
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Bibliographic Info

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

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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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Keywords: Intrafirm bargaining; matching; firm size distribution;

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  13. Kaneko, Mamoru & Wooders, Myrna Holtz, 1996. "The Nonemptiness of the f-Core of a Game without Side Payments," International Journal of Game Theory, Springer, vol. 25(2), pages 245-58.
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  17. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
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