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The Tyranny of Inequality

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Author Info
Raghuram G. Rajan
Luigi Zingales

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Abstract

Life is replete with instances where two closely related parties forego mutually advantageous opportunities: peace treaties are not signed, inefficient regulations are not altered, and possibilities for investment are frittered away. Since the parties are in close contact, asymmetric information cannot be an explanation for the failure to agree. The explanation this paper offers is based on the assumption that when two parties interact repeatedly, not all aspects of the relationship are contractible. Each party's property rights in the relationship then become endogenous. Efficiency and distribution are not separable in such a world, leading the parties to forego perfectly contractible opportunities. The inability to cooperate is especially severe when one of the parties has relatively poor production opportunities which may explain why the inefficient have undue sway. We explore a number of applications.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5396.

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Date of creation: Dec 1995
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Handle: RePEc:nbr:nberwo:5396

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  1. Simeon Djankov & Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "The New Comparative Economics," NBER Working Papers 9608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Shim, Ilhyock & Sharma, Sunil & Chami, Ralph, 2008. "A Model of the IMF as a Coinsurance Arrangement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(14), pages 1-41. [Downloadable!]
    Other versions:
  4. Zingales, Luigi, 2000. "In Search of New Foundations," CEPR Discussion Papers 2551, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Dieter Boes & Martin Kolmar, 2000. "Anarchy, Efficiency, and Redistribution," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Acemoglu, Daron & Johnson, Simon H. & Robinson, James A., 2003. "The Rise of Europe: Atlantic Trade, Institutioanl Change and Economic Growth," Working papers 4269-02, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
    Other versions:
  7. Luigi Zingales, 2000. "In Search of New Foundations," NBER Working Papers 7706, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Stefan Brandauer & Florian Englmaier, 2006. "A Model of Strategic Delegation in Contests between Groups," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Stergios Skaperdas & Constantinos Syropoulos, 2002. "Insecure Property and the Efficiency of Exchange," Economic Journal, Royal Economic Society, vol. 112(476), pages 133-146, January. [Downloadable!] (restricted)
  10. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006. [Downloadable!]
    Other versions:
  11. Castillo, Ramon & Skaperdas, Stergios, 2003. "All in the Family or Public? Law and Appropriative Costs as Determinants of Ownership Structure," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  12. Samuel Lee & Nina Moisa & Marco Weiß, 2003. "Open Source as a Signalling Device - An Economic Analysis," Working Paper Series: Finance and Accounting 102, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  13. Daron Acemoglu, 2002. "Why Not a Political Coase Theorem? Social Conflict, Commitment and Politics," NBER Working Papers 9377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Inderst, Roman & Mueller, Holger M & Wärneryd, Karl, 2002. "Distributional Conflict in Organisations," CEPR Discussion Papers 3315, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics. [Downloadable!]
  16. Luigi Zingales, 2000. "In Search of New Foundations," CRSP working papers 515, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
  17. Johannes Münster & Klaas Staal, 2005. "War with Outsiders Makes Peace Inside," Discussion Papers 75, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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