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Wealth Dynamics in Communities

Author

Listed:
  • Daniel Barron
  • Yingni Guo
  • Bryony Reich

Abstract

This article develops a model to explore how favour exchange influences wealth dynamics. We identify a key obstacle to wealth accumulation: wealth crowds out favour exchange. Therefore, households must choose between growing their wealth and accessing favour exchange. We show that low-wealth households rely on favour exchange at the cost of having tightly limited long-term wealth. As a result, initial wealth disparities persist and can even grow worse. We then explore how communities and policymakers can overcome this obstacle. Using simulations, we show that community benefits and place-based policies can stimulate both saving and favour exchange, and in some cases, can even transform favour exchange into a force that accelerates wealth accumulation.

Suggested Citation

  • Daniel Barron & Yingni Guo & Bryony Reich, 2023. "Wealth Dynamics in Communities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(4), pages 1642-1668.
    • Handle: RePEc:oup:restud:v:90:y:2023:i:4:p:1642-1668.
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    File URL: http://hdl.handle.net/10.1093/restud/rdac057
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