Rent Seeking and Endogenous Income Inequality
IMF Working Papers, February 1, 2001
Source details
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- Rent Seeking and Endogenous Income Inequality
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Bibliographic details
- Authors: Paul R Wade, Era Dabla-Norris
- Published: February 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843262.001
Main findings
- The 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.
- Initial wealth determines occupational choice and aggregate economic activity.
- The model 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.
Mechanisms and analysis
- Imperfect credit markets and a fixed cost to rent-seeking create a wealth threshold above which agents prefer rent-seeking over production.
- Rent-seeking serves as a protective strategy for accumulated wealth against expropriation.
- Voluntary fair gambles among identical agents lead to endogenous divergence in wealth distribution.
- Intergenerational transmission of inequality occurs when agents exhibit altruistic bequest motives, reinforcing income and occupational stratification.
Subjects and keywords
- Subjects: Civil service, Consumption, Income, Income distribution, Income inequality, Labor, National accounts
- Keywords: Civil service, Consumption, Europe, expected rent, expected return, Income, Income distribution, income inequality, lotteries, marginal utility, number of rent, production show, rent seeker, rent seeking, seeker's input, utility function, WP
Content in this bundle
- Rent Seeking and Endogenous Income Inequality - WP/01/15