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Inequality, Predation and Welfare

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  • Herschel I. Grossman
  • Minseong Kim

Abstract

This paper studies the relation between inequality and welfare in a general- equilibrium model in which people can choose to be either producers or preda- tors. We assume some people (the privileged) are well endowed with human capital and other people (the unprivileged) are poorly endowed with human capital. We analyze how the choice of the privileged between deterring and tolerating predation by the unprivileged depends on the interpersonal distri- bution of human capital. We find that, if the number of unprivileged people is large, but a privileged person doesn't have too much human capital relative to an unprivileged person, then the privileged allocate enough time and effort to guarding against predation to deter the unprivileged from being predators. Otherwise, the privileged tolerate predation by the unprivileged. A distribu- tion of human capital that is more egalitarian in that the number of people who are unprivileged is smaller can result in the privileged choosing to tolerate rather than to deter predation by the unprivileged. Next, we partition the feasible distributions of human capital into sets of Pareto efficient and inefficient distributions. Interestingly, we find that if the average endowment of human capital is large, then the fully egalitarian distribution is not Pareto efficient. Instead, Pareto efficiency implies an unegalitarian distribution of human capital where each unprivileged person has only the endowment of human capital he had at birth. Also, this unegalitarian distribution satisfies the Rawlsian criterion of maximizing the consumption of the unprivileged. With this unegalitarian distribution the privileged tolerate predation by the unprivileged, which results in maximum consumption for all.

Suggested Citation

  • Herschel I. Grossman & Minseong Kim, 1996. "Inequality, Predation and Welfare," NBER Working Papers 5704, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5704
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    References listed on IDEAS

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    1. Wong, Yue-Chim Richard, 1995. "An Economic Analysis of the Crime Rate in England and Wales, 1857-92," Economica, London School of Economics and Political Science, vol. 62(246), pages 235-246, May.
    2. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1275-1288, December.
    3. Grossman, Herschel I., 1995. "Robin hood and the redistribution of property income," European Journal of Political Economy, Elsevier, vol. 11(3), pages 399-410, September.
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    Citations

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    Cited by:

    1. Hall, Robert E & Jones, Charles I, 1997. "Levels of Economic Activity across Countries," American Economic Review, American Economic Association, vol. 87(2), pages 173-177, May.
    2. Bos, Dieter & Kolmar, Martin, 2003. "Anarchy, efficiency, and redistribution," Journal of Public Economics, Elsevier, vol. 87(11), pages 2431-2457, October.
    3. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    4. Sylwester, Kevin, 2001. "A model of institutional formation within a rent seeking environment," Journal of Economic Behavior & Organization, Elsevier, vol. 44(2), pages 169-176, February.
    5. Noh, Suk Jae, 1999. "A General Equilibrium Model of Two Group Conflict with Endogenous Intra-group Sharing Rules," Public Choice, Springer, vol. 98(3-4), pages 251-267, March.
    6. Bos, Dieter & Kolmar, Martin, 2003. "Anarchy, efficiency, and redistribution," Journal of Public Economics, Elsevier, vol. 87(11), pages 2431-2457, October.
    7. Josten, Stefan Dietrich, 2003. "Inequality, Crime and Economic Growth: A Classical Argument for Distributional Equality," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 435-452, August.
    8. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    9. Carlos Bethencourt & Fernando Perera-Tallo, 2011. "Predation, Labor Share and Development," DEGIT Conference Papers c016_039, DEGIT, Dynamics, Economic Growth, and International Trade.
    10. Robert E. Hall & Charles I. Jones, "undated". "The Productivity of Nations," Working Papers 96012, Stanford University, Department of Economics.
    11. Kolmar, Martin & Marjit, Sugata, 2002. "The informal sector as a substitute for social security," Discussion Papers, Series I 316, University of Konstanz, Department of Economics.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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