Contractual Structure and Wealth Accumulation
American Economic Review
no. 4, September 2002
Can historical wealth distributions affect long-run output and inequality despite "rational" saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and "history" does not matter eventually. (D31, D91, I32, O17, Q15)
Mookherjee, Dilip, and Debraj Ray.
"Contractual Structure and Wealth Accumulation ."
American Economic Review,
Personal Income, Wealth, and Their Distributions
Measurement and Analysis of Poverty
Intertemporal Household Choice; Life Cycle Models and Saving
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements