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Income Distribution, Search and Market Efficiency

Author

Listed:
  • Simhon Avi

    () (The Hebrew University of Jerusalem)

  • Fishman Arthur

    () (Bar-Ilan University)

Abstract

This paper explores the relationship between income distribution, prices, production efficiency and aggregate output in a decentralized search economy. We show that income distribution determines how competitive prices are and thereby affects production efficiency and aggregate output. It is shown that, under reasonable assumptions, it is possible to engineer a judicious transfer of income from high to low income individuals, which increases income equality, leads to more competitive prices, and increases aggregate output.

Suggested Citation

  • Simhon Avi & Fishman Arthur, 2011. "Income Distribution, Search and Market Efficiency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-23, January.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:8
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    References listed on IDEAS

    as
    1. Saul Lach, 2007. "Immigration and Prices," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 548-587, August.
    2. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-840, October.
    3. Rafael Rob, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 487-504.
    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    5. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    6. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    7. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
    8. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    9. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August.
    10. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    11. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
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