Rent Seeking and Endogenous Income Inequality

Author/Editor:

Paul R Wade ; Era Dabla-Norris

Publication Date:

February 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies the relationship between wealth inequality and occupational choice between rent-seeking and production. With imperfect credit markets and a fixed cost to rent-seeking, only wealthy agents choose to engage in rent-seeking as it enables them to protect their wealth from expropriation. Hence, initial wealth determines occupational choice and aggregate economic activity. The model also generates an unequal wealth distribution endogenously through fair gambles undertaken voluntarily, despite agents being identical ex ante. If agents have an altruistic bequest motive, income and occupational differences can be perpetuated from generation to generation.

Series:

Working Paper No. 01/15

Subject:

English

Publication Date:

February 1, 2001

ISBN/ISSN:

9781451843262/1018-5941

Stock No:

WPIEA0152001

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

29

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