## Rent Seeking and Endogenous Income Inequality

_IMF Working Papers, February 1, 2001_

## Source details

**Canonical URL:** [Rent Seeking and Endogenous Income Inequality](https://www.imf.org/en/publications/wp/issues/2016/12/30/rent-seeking-and-endogenous-income-inequality-3981)

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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

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/rent-seeking-and-endogenous-income-inequality-3981_