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Contractual Structure and Wealth Accumulation

  • Dilip Mookherjee
  • Debraj Ray

Can historical wealth distributions affect long-run output and inequality despite "rational" saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and "history" does not matter eventually. (D31, D91, I32, O17, Q15)

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Paper provided by Boston University, Institute for Economic Development in its series Boston University - Institute for Economic Development with number 107.

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Date of creation: Jun 2000
Date of revision:
Handle: RePEc:fth:bosecd:107
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  5. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February.
  6. Mookherjee, Dilip & Ray, Debraj, 2002. "Persistent Inequality," Discussion Paper 57, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
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  17. Hoff, Karla & Lyon, Andrew B., 1995. "Non-leaky buckets: Optimal redistributive taxation and agency costs," Journal of Public Economics, Elsevier, vol. 58(3), pages 365-390, November.
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  32. repec:fth:bosecd:108 is not listed on IDEAS
  33. Dilip Mookherjee, 1995. "Informational Rents and Property Rights in Land," Boston University - Institute for Economic Development 55, Boston University, Institute for Economic Development.
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