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Occupational choice, incentives and wealth distribution

  • Chakraborty, Archishman
  • Citanna, Alessandro

We consider a model of occupational choice in large economies where individuals differ in their wealth endowment. Individuals can remain self-employed or engage in productive matches with another individual, i.e., form firms. Matches are subject to a moral hazard problem with limited liability. The division of the gains from such matches is determined by competitive forces. When the incentive problem is asymmetric, matches are typically wealth-heterogeneous, with richer individuals choosing the occupation for which incentives are more important. The utilities attained within a match depend on the wealth distribution and changes in the latter give rise to ‘trickle down' effects.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 122 (2005)
Issue (Month): 2 (June)
Pages: 206-224

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Handle: RePEc:eee:jetheo:v:122:y:2005:i:2:p:206-224
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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