Mitigating the trade-off between equality and dynamic efficiency
In a model where decisions on income distribution and investment are separated beltween two classes (workers and capitalists), Lancaster (1973) showed that dynamic inefficiency will occur. The reason is that investors do not internalise the external effects of investment. In two kinds of growth models, this paper proposes income distribution rules that reduce or eliminate these problems, by separating the considerations on efficiency and income distribution from each other.
Volume (Year): 6 (1993)
Issue (Month): 2 (Autumn)
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- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
- Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
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