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Wealth Inequality, Wealth Constraints and Economic Performance

  • Bardhan, Pranab
  • Bowles, Samuel
  • Gintis, Herbert

When asymmetry or non-verifiability of information, or non-excludability of users, makes contracts incomplete or unenforceable, and where for these and other reasons there are impediments to efficient bargaining, we show that private contracting will not generally assign the control of assets and the residual claimancy over income streams of projects to achieve socially efficient outcomes, suggesting that the policy relevance of the widely accepted "efficiency-equity tradeoff" should be seriously reconsidered. We illustrate these ideas with reference to misallocations in land, labor and credit markets. We also explore the consequences of redistributive policies for risk-taking and risk exposure when non-wealthy agents are risk-averse and for resolving collective action problems inherent in the provision of local public goods in the context of commons.

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Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt3bh899fh.

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Date of creation: 06 Dec 1999
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Handle: RePEc:cdl:ciders:qt3bh899fh
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