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Heterogeneity, Stratification, and Growth

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  • Benabou, R.

Abstract

This paper examines how economic stratification affects inequality and growth over time. It studies economies where heterogenous agents interact through local public goods or externalities (school funding, neighbourhood effects) and economy-wide linkages (complementary skills, knowledge spillovers). It compares growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal trade-off: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This trade-off occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, the paper identifies the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 93-4.

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Length: 40 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:mit:worpap:93-4

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: (617) 253-3361
Fax: (617) 253-1330
Web page: http://econ-www.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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Keywords: economic models ; economic analysis ; econometrics ; economic growth;

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References

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  1. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
  2. Tamura, R., 1991. "Efficient Equilibrium Convergence : Heterogeneity and Growth," Working Papers 91-16, University of Iowa, Department of Economics.
  3. George J. Borjas, 1991. "Ethnic Capital and Intergenerational Mobility," NBER Working Papers 3788, National Bureau of Economic Research, Inc.
  4. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  5. Borjas, George J, 1995. "Ethnicity, Neighborhoods, and Human-Capital Externalities," American Economic Review, American Economic Association, vol. 85(3), pages 365-90, June.
  6. Banerjee, A.V. & Besley, T., 1990. "Peer Group Externalities And The Learning Incentives: A Theory Of Nerd Behavior," Papers 68, Princeton, Woodrow Wilson School - Discussion Paper.
  7. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  8. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  9. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. Burda, Michael & Wyplosz, Charles, 1992. "Human capital, investment and migration in an integrated Europe," European Economic Review, Elsevier, vol. 36(2-3), pages 677-684, April.
  12. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  13. Fernandez, R. & Rogerson, R., 1992. "Income Distribution, Communities and the Quality of Public Education: A Policy Analysis," Papers 1, Boston University - Department of Economics.
  14. Tamura, Robert, 1991. "Income Convergence in an Endogenous Growth Model," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 522-40, June.
  15. Streufert, Peter, 2000. " The Effect of Underclass Social Isolation on Schooling Choice," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 461-82.
  16. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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