Rent Seeking and Endogenous Income Inequality
February 1, 2001
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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.
Subject: 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
Pages:
29
Volume:
2001
DOI:
Issue:
015
Series:
Working Paper No. 2001/015
Stock No:
WPIEA0152001
ISBN:
9781451843262
ISSN:
1018-5941
