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Occupational Diversity and Endogenous Inequality

  • Dilip Mookherjee

    ()

    (Institute for Economic Development, Boston University)

  • debraj Ray

    ()

    (New York University and Instituto de Analisis Economico (CSIC))

A traditional view of markets is that they equalize wealth across individuals. A more recent literature suggests that markets are inherently disequalizing. A third viewpoint argues that initial history is crucial in determining whether inequalities persist or not. By constructing a theory of equilibrium investment allocation between human capital and financial assets in the presence of borrowing constraints, we address these views in a unified way. Two attributes of occupational diversity turn out to be central to our understanding: span, the range of training costs across occupations, and richness, the variety of different training costs contained within the span. The former is used to generate a necessary and sufficient condition for markets to be disequalizing, while the latter is shown to be directly connected to the question of history-dependence.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-142.

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Length: 36 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bos:iedwpr:dp-142
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Web page: http://www.bu.edu/econ/

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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 369-393.
  4. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
  5. Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1999. "Simulating the Transmission of Wealth Inequity via Bequests," NBER Working Papers 7183, National Bureau of Economic Research, Inc.
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  7. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  8. Lloyd-Ellis, Huw & Bernhardt, Dan, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 147-68, January.
  9. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  10. Dilip Mookherjee & Debraj Ray, 2002. "Is Equality Stable?," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-121, Boston University - Department of Economics.
  11. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  12. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  13. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  14. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  15. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
  16. Kiminori Matsuyama, 2001. "On the Rise and Fall of Class Societies," Discussion Papers 1326, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  18. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
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