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Persistent Inequality

  • Mookherjee, Dilip
  • Ray, Debraj

Existing literature explains persistent inequality either by ongoing shocks to abilities or preferences, or by a combination of technological indivisibilities, capital market imperfections and ad hoc assumptions concerning savings behavior. We focus on the role of pecuniary externalities - driven by endogenous movements in relative prices - in explaining both the emergence and persistence of long-run inequality. With imperfect capital markets, it turns out that long-run inequality is inevitable, even if investments are divisible, agents maximize dynastic utility, and there are no random shocks. However, the divisibility of investment does matter in determining the multiplicity of steady states: with perfect divisibility such multiplicity typically disappears. We subsequently characterize efficient steady states, and study non-steady-state dynamics in a two occupation context.

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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series Discussion Paper with number 57.

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Length: 52 p.
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:hit:piedp1:57
Note: This version: September 2001
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  1. Kiminori Matsuyama, 2000. "The Rise of Mass Consumption Societies," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  3. Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 369-393.
  4. Dilip Mookherjee & Debraj Ray, 2002. "Is Equality Stable?," American Economic Review, American Economic Association, vol. 92(2), pages 253-259, May.
  5. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  6. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Dechert, W. Davis & Nishimura, Kazuo, 1983. "A complete characterization of optimal growth paths in an aggregated model with a non-concave production function," Journal of Economic Theory, Elsevier, vol. 31(2), pages 332-354, December.
  8. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Maoz, Yishay D & Moav, Omer, 1999. "Intergenerational Mobility and the Process of Development," Economic Journal, Royal Economic Society, vol. 109(458), pages 677-97, October.
  10. Mukul Majumdar & Tapan Mitra, 1983. "Dynamic Optimization with a Non-Convex Technology: The Case of a Linear Objective Function," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 143-151.
  11. Ray, Debraj & Streufert, Peter A, 1993. "Dynamic Equilibria with Unemployment Due to Undernourishment," Economic Theory, Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 61-85, January.
  12. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  13. repec:fth:bosecd:108 is not listed on IDEAS
  14. Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September.
  15. Moav, Omer, 2002. "Income distribution and macroeconomics: the persistence of inequality in a convex technology framework," Economics Letters, Elsevier, vol. 75(2), pages 187-192, April.
  16. Baland, Jean-Marie & Ray, Debraj, 1991. "Why does asset inequality affect unemployment? A study of the demand composition problem," Journal of Development Economics, Elsevier, vol. 35(1), pages 69-92, January.
  17. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  18. Bandyopadhyay, Debasis, 1997. "Distribution of Human Capital and Economic Growth," Working Papers 157, Department of Economics, The University of Auckland.
  19. Majumdar, Mukul & Mitra, Tapan, 1982. "Intertemporal allocation with a non-convex technology: The aggregative framework," Journal of Economic Theory, Elsevier, vol. 27(1), pages 101-136, June.
  20. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
  21. 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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