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Predation, Efficiency, and Inequality

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  • Herschel I. Grossman
  • Minseong Kim

Abstract

This paper shows how predation breaks the links between an economy's aggregate resourceendowment and aggregate consumption and between the interpersonal distribution of endowments and the interpersonal distribution of consumption. We construct a general-equilibrium model in which some people (the privileged) are well endowed with resources and other people (the unprivileged) are poorly endowed with resources and in which each person can choose to be either a producer or a predator. Here, the choice by some to be predators decreases decreases aggregate consumption, both because the predators' resources are wasted and because producers sacrifice production by allocating resources to guarding against predators. Analyzing this model we find that the minimum equilibrium ratio of predators to producers depends on the technology of predation. Also, the equilibrium ratio of predators to producers equals its minimum value if and only if the ratio of unprivileged to privileged people is not larger than this minimum value. These properties imply that, in contrast to a model that abstracts from predation, the fully egalitarian distribution of resources does not satisfy the Rawlsian criterion of maximizing the consumption of the person with the lowest consumption. (In fact, the fully egalitarian distribution is not even Pareto efficient). Instead, the Rawlsian criterion selects an unegalitarian distribution of resources in which the ratio of unprivileged to privileged people equals the minimum ratio of predators to producers and in which unprivileged have only the minimum possible endowment of resources. In the resulting Rawlsian equilibrium, only unprivileged people choose to be predators rather than producers and because both the ratio of predators to producers and the amount of resources predators waste are minimized aggregate consumption is maximized.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6301.

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Date of creation: Dec 1997
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Publication status: published as Herschel I. Grossman & Minseong Kim, 2002. "Predation, Efficiency, and Inequality," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(3), pages 393-, September.
Handle: RePEc:nbr:nberwo:6301

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References

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  1. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(6), pages 1275-88, December.
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Cited by:
  1. Shankha Chakraborty & Era Dabla-Norris, 2005. "Rent Seeking," IMF Working Papers 05/43, International Monetary Fund.
  2. Herschel I. Grossman & M. Kim, 1997. "Human Capital and Predation: A Positive Theory of Educational Policy," Working Papers 97-30, Brown University, Department of Economics.
  3. Grossman, Herschel I., 2002. ""Make us a king": anarchy, predation, and the state," European Journal of Political Economy, Elsevier, vol. 18(1), pages 31-46, March.
  4. Herschel I. Grossman, 1999. "Producers and Predators," NBER Working Papers 6499, National Bureau of Economic Research, Inc.
  5. Herschel I. Grossman, 2000. "Inventors and Pirates: Creative Activity and Intellectual Property Rights," NBER Working Papers 7898, National Bureau of Economic Research, Inc.
  6. H. I. Grossman & M. Kim, 1999. "Educational Policy: Egalitarian or Elitist?," Working Papers 365, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Dieter Bös & Martin Kolmar, 2000. "Anarchy, Efficiency, and Redistribution," CESifo Working Paper Series 357, CESifo Group Munich.
  8. Kolmar, Martin, 2005. "The contribution of Herschel I. Grossman to political economy," European Journal of Political Economy, Elsevier, vol. 21(4), pages 802-814, December.
  9. Rodolfo Apreda, 2004. "Corporate Rent-Seeking and the managerial soft-budget constraint," CEMA Working Papers: Serie Documentos de Trabajo. 283, Universidad del CEMA.

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