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Wealth Inequality and the Exploration of Novel Alternatives

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  • Alessandro Spiganti

    (Department of Economics, Ca' Foscari University of Venice)

Abstract

I investigate whether wealth inequality hinders the discovery of novel alternatives in a competitive screening model. Agents can engage in experimentation, which may lead to the discovery of superior technologies, while wasting time with inferior ones. Talented agents are better at weeding out inferior actions, but talent is unobservable by lenders. When agents are poor, this causes an adverse selection problem and experimentation is also pursued by untalented agents. As economies become wealthier, this misallocation problem weakens. Higher inequality worsens the misallocation problem when the economy is rich, but can increase efficiency in poor economies.

Suggested Citation

  • Alessandro Spiganti, 2022. "Wealth Inequality and the Exploration of Novel Alternatives," Working Papers 2022:02, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2022:02
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    More about this item

    Keywords

    inequality of opportunity; bandit problem; unobservable talent; competitive screening;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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