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Heterogeneity, Stratification, and Growth

  • Benabou, R.

We examine how economic stratification affects inequality and growth over time. We study economies where heterogenous agents interact through local public goods or externalities (school funding, neighborhood effects) and economy-wide linkages (complementary skills. knowledge spillovers). We compare growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal tradeoff: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This tradeoff occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, we identify the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.

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Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 93-4.

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Length: 40 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:mit:worpap:93-4
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  1. Raquel Fernandez & Richard Rogerson, 1992. "Income Distribution, Communities and the Quality of Public Education: A Policy Analysis," NBER Working Papers 4158, National Bureau of Economic Research, Inc.
  2. Streufert, Peter, 2000. " The Effect of Underclass Social Isolation on Schooling Choice," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 461-82.
  3. Banerjee, A.V. & Besley, T., 1990. "Peer Group Externalities And The Learning Incentives: A Theory Of Nerd Behavior," Papers 68, Princeton, Woodrow Wilson School - Discussion Paper.
  4. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 619-652.
  5. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Burda, Michael & Wyplosz, Charles, 1992. "Human capital, investment and migration in an integrated Europe," European Economic Review, Elsevier, vol. 36(2-3), pages 677-684, April.
  7. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  8. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1991. "The Allocation of Talent: Implications for Growth," Scholarly Articles 27692664, Harvard University Department of Economics.
  9. George J. Borjas, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 123-150.
  10. Borjas, George J, 1995. "Ethnicity, Neighborhoods, and Human-Capital Externalities," American Economic Review, American Economic Association, vol. 85(3), pages 365-90, June.
  11. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  12. Tamura, Robert, 1991. "Income Convergence in an Endogenous Growth Model," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 522-40, June.
  13. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  14. Tamura, R., 1991. "Efficient Equilibrium Convergence : Heterogeneity and Growth," Working Papers 91-16, University of Iowa, Department of Economics.
  15. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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