Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inequality and Risk

Contents:

Author Info

  • Marcel Fafchamps

Abstract

This paper examines how wealth accumulation and risk sharing affect the evolution of inequality over time. We first assume risk sharing away and examine how inequality evolves over time when agents accumulate an asset. If asset accumulation is unbounded and the asset yields a positive return, inequality converges to single value over time. If the asset yields a zero or negative return (e.g., grain storage), there is no persistent inequality but inequality is nevertheless correlated over time. If wealth yields a positive return but is in finite supply (e.g., land), persistent inequality arises if one agent is more thrifty than the other. Multiple equilibria may obtain. Societies might prevent polarization by closing down markets in such assets. We then introduce risk sharing. With perfect risk sharing, welfare inequality is constant across time. For continued participation to mutual insurance to be voluntary, asset inequality must remain `close` to welfare inequality. With imperfect commitment, the end result is a hybrid situation half-way between the risk sharing model and the pure accumulation model. If risk aversion is high for poor agents but low for rich ones, patronage arises whereby the rich on average take away from the poor.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper141.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 141.

as in new window
Length:
Date of creation: 01 Jan 2003
Date of revision:
Handle: RePEc:oxf:wpaper:141

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC

Related research

Keywords: dynamic inequality; poverty dynamics; risk sharing;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 495-526, July.
  2. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 957-76, October.
  3. Stiglitz, Joseph E, 1969. "Distribution of Income and Wealth among Individuals," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 382-97, July.
  4. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
  5. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  6. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center, Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  7. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1221-48, September.
  8. Fafchamps, Marcel & Quisumbing, Agnes R., 1998. "Human capital, productivity, and labor allocation in rural Pakistan," FCND discussion papers, International Food Policy Research Institute (IFPRI) 48, International Food Policy Research Institute (IFPRI).
  9. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  10. Maoz, Yishay D & Moav, Omer, 1999. "Intergenerational Mobility and the Process of Development," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(458), pages 677-97, October.
  11. Banerjee, Abhijit V & Newman, Andrew F, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 211-35, April.
  12. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 928-56, October.
  13. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
  14. Atwood, David A., 1990. "Land registration in Africa: The impact on agricultural production," World Development, Elsevier, Elsevier, vol. 18(5), pages 659-671, May.
  15. Richard A. Posner, 1979. "A Theory of Primitive Society with Special Reference to Law," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 7, Chicago - Center for Study of Economy and State.
  16. Carter, Michael R. & Zimmerman, Frederick J., 2000. "The dynamic cost and persistence of asset inequality in an agrarian economy," Journal of Development Economics, Elsevier, Elsevier, vol. 63(2), pages 265-302, December.
  17. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 96-129, March.
  18. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, American Economic Association, vol. 78(1), pages 224-32, March.
  19. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  20. Rajnish Mehra, 2006. "Recursive Competitive Equilibrium," NBER Working Papers 12433, National Bureau of Economic Research, Inc.
  21. repec:fth:bosecd:108 is not listed on IDEAS
  22. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 15-33, March.
  23. Deaton, Angus, 1992. " Household Saving in LDCs: Credit Markets, Insurance and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(2), pages 253-73.
  24. Stephen Zeldes, . "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 20-86, Wharton School Rodney L. White Center for Financial Research.
  25. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  26. Platteau, Jean-Philippe, 1995. "An Indian Model of Aristocratic Patronage," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 636-62, October.
  27. Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(4), pages 847-64, October.
  28. X. Zhang & R. Kanbur, 2001. "What Difference Do Polarisation Measures Make? An Application to China," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(3), pages 85-98.
  29. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  30. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Rogg, Christian, 2006. "Asset Portfolios in Africa: Evidence from Rural Ethiopia," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2006/145, World Institute for Development Economic Research (UNU-WIDER).
  2. Stefan Dercon, 2000. "Income risk, coping strategies and safety nets," CSAE Working Paper Series 2000-26, Centre for the Study of African Economies, University of Oxford.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:141. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.