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A Model of Trickle Down Through Learning

  • K Blackburn
  • N Bose

This paper presents an analysis of income distribution based on an overlapping generations model of imperfect capital markets, technological non-convexities and information acquisition. Heterogeneous, altruistic agents apply for loans from financial intermediaries to undertake risky investment projects. Borrowing is prohibited below a critical level of wealth that depends on agents' evaluation of risk which is updated over time according to the arrival of new information. This process of learning governs the transition of lineage wealth and, with it, the dynamics of income distribution. In general, limiting outcomes depend on initial conditions that determine the extent to which class divisions persist in multiple steady state equilibria. Such divisions may vanish if the the initial distribution satisfies certain criteria.

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 06.

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Length: 22 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:man:cgbcrp:06
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  1. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
  2. Bénabou, Roland, 1993. "Heterogeneity, Stratification and Growth," CEPR Discussion Papers 815, C.E.P.R. Discussion Papers.
  3. Atkinson, A-B, 1996. "Bringing Income Distribution in from the Cold," Economics Papers 117, Economics Group, Nuffield College, University of Oxford.
  4. Boyan Jovanovic & Yaw Nyarko, 1994. "Learning By Doing and the Choice of Technology," NBER Working Papers 4739, National Bureau of Economic Research, Inc.
  5. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  6. Fernandez, R. & Rogerson, R., 1992. "Income Distribution, Communities and the Quality of Public Education: A Policy Analysis," Papers 1, Boston University - Department of Economics.
  7. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  8. repec:att:wimass:9328 is not listed on IDEAS
  9. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
  10. 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.
  11. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
  12. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  13. Steven N. Durlauf, 1995. "Neighborhood Feedbacks, Endogenous Stratification, and Income Inequality," Working Papers 95-07-061, Santa Fe Institute.
  14. 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.
  15. Lang, William W. & Nakamura, Leonard I., 1990. "The dynamics of credit markets in a model with learning," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 305-318, October.
  16. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  17. Robert Wilson, 1975. "Informational Economies of Scale," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 184-195, Spring.
  18. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
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