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Credit Constraints, Competition, and Meritocracy

Author

Listed:
  • Francesco Caselli

    (London School of Economics,)

  • Nicola Gennaioli

    (University of Stockholm,)

Abstract

This paper studies a simple model of the talent-ownership mismatch-or failure of meritocracy-brought about by credit market imperfections that prevent the transfer of control over productive assets from the untalented rich to the talented poor. We present two main insights. First, there may be multiple equilibria in the degree of meritocracy. Second, the severity of the misallocation of talent depends on the degree of concentration on the good market. Hence, reforms that improve the workings of the credit market (such as better enforcement of contracts), and reforms that reduce concentration (such as deregulation) are to some degree substitutes in bringing about greater meritocracy. We also examine which reform strategy is more likely to enhance efficiency without violating political constraints. (JEL: G3, O10, O47) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • Francesco Caselli & Nicola Gennaioli, 2005. "Credit Constraints, Competition, and Meritocracy," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 679-689, 04/05.
  • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:679-689
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    Citations

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    Cited by:

    1. Carmen Aina & Cheti Nicoletti, 2014. "The intergenerational transmission of liberal professions: nepotism versus abilities," Discussion Papers 14/14, Department of Economics, University of York.
    2. Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, January.
    3. Parker, Simon C. & van Praag, Mirjam C., 2006. "The Entrepreneur's Mode of Entry: Business Takeover or New Venture Start," IZA Discussion Papers 2382, Institute for the Study of Labor (IZA).
    4. Ponzo, Michela & Scoppa, Vincenzo, 2008. "The Use of Informal Networks in Italian Labor Markets: Efficiency or Favoritisms?," MPRA Paper 11764, University Library of Munich, Germany.
    5. repec:eee:labeco:v:51:y:2018:i:c:p:108-120 is not listed on IDEAS
    6. Kim, Se-Um, 2008. "The Technological Origins of the High School Movement," MPRA Paper 12087, University Library of Munich, Germany.
    7. Lofstrom, Magnus & Bates, Timothy & Parker, Simon C., 2014. "Why are some people more likely to become small-businesses owners than others: Entrepreneurship entry and industry-specific barriers," Journal of Business Venturing, Elsevier, vol. 29(2), pages 232-251.
    8. repec:eee:ecosys:v:41:y:2017:i:2:p:179-202 is not listed on IDEAS
    9. Aina, Carmen & Nicoletti, Cheti, 2014. "The intergenerational mobility of liberal professions: nepotism versus abilities," ISER Working Paper Series 2014-39, Institute for Social and Economic Research.
    10. Gianpaolo Parise & Fabrizio Leone, 2018. "Family first? Nepotism and corporate investment," BIS Working Papers 693, Bank for International Settlements.
    11. Benazzo, Piero, 2010. "Equity Criteria as Instrument to Ensure Sustainability of Pareto or Kaldor-Hicks Efficiency: A Correlation Hidden by Sources of Confounding as Key for Sorting Out the Global Economic Crisis," MPRA Paper 23678, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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