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On the Rise and Fall of Class Societies

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  • Kiminori Matsuyama

Abstract

This paper develops a theoretical framework to understand mechanisms behind the rise and fall of class societies. The dynamics is described by the joint evolution of the wage rate, the vertical division of labor between employers and workers, and the distribution of household wealth. The model is simple enough to allow for a complete characterization of the steady states. For some parameter values, the model predicts the rise of class societies, where the households are permanently separated into the two classes in any steady state. The rich bourgeoisie maintain a high level of wealth due to the presence of the poor proletariat, which has no choice but to work at a wage rate strictly lower than the gfairh value of labor. For other parameter values, the model predicts the fall of class societies, where job creation by the rich employers pushes up the wage rate so much that the workers will escape from the poverty and eventually catch up with the rich. Thus, the wealth created by the rich trickles down to the poor, and, in the steady state, the inequality disappears. As an application, this framework is used to study the effects of self-employment, which provides the poor with an alternative to working for the rich, and at the same time, provides the rich with an alternative to the job creating investment, which could benefit the poor.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1326.

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Date of creation: Sep 2001
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Handle: RePEc:nwu:cmsems:1326

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References

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  1. Kiminori Matsuyama, 2000. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1300, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
  3. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  4. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  5. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Boston University - Institute for Economic Development 65, Boston University, Institute for Economic Development.
  6. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  7. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  9. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
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Cited by:
  1. Doepke, Matthias & Zilibotti, Fabrizio, 2005. "Patience Capital and the Demise of the Aristocracy," Seminar Papers 735, Stockholm University, Institute for International Economic Studies.
  2. Dilip Mookherjee & debraj Ray, 2005. "Occupational Diversity and Endogenous Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-142, Boston University - Department of Economics.
  3. Manuel Oechslin, 2006. "Creditor Protection and the Dynamics of the Distribution in Oligarchic Societies," IEW - Working Papers 264, Institute for Empirical Research in Economics - University of Zurich.
  4. Kiminori Matsuyama, 2005. "Credit Market Imperfections and Patterns of International Trade and Capital Flows," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 714-723, 04/05.
  5. Christian Ahlin & Neville Jiang, 2005. "Can Micro-Credit Bring Development?," Vanderbilt University Department of Economics Working Papers 05019, Vanderbilt University Department of Economics.
  6. Matsuyama, Kiminori, 2013. "The good, the bad, and the ugly: An inquiry into the causes and nature of credit cycles," Theoretical Economics, Econometric Society, vol. 8(3), September.
  7. Kiminori Matsuyama, 2000. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1300, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Falilou Fall, 2005. "Endogenous persistent inequality," Cahiers de la Maison des Sciences Economiques v05059, Université Panthéon-Sorbonne (Paris 1).

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