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Occupational Diversity and Endogenous Inequality

  • Dilip Mookherjee

    ()

    (Department of Economics, Boston University)

  • Debraj Ray

    ()

    (New York University and Instituto de An´alisis Econ´omico (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 - Working Papers Series with number WP2005-022.

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Length: 37 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-022
Contact details of provider: Postal: 270 Bay State Road, Boston, MA 02215
Phone: 617-353-4389
Fax: 617-353-4449
Web page: http://www.bu.edu/econ/

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  1. 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.
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  8. Matsuyama, Kiminori, 2000. "Endogenous Inequality," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 743-59, October.
  9. 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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  12. 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.
  13. Lloyd-Ellis, Huw & Bernhardt, Dan, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 147-68, January.
  14. 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.
  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.
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  17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  18. 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.
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