Economic Inequality

Displaying 42 Items

Growth, Automation and the Long-Run Share of Labor

(with Dilip Mookherjee), June 2020. Supplementary Appendix. Slides.

Summary. We present a theory of long run inequality and automation driven by capital accumulation rather than technical progress. At the heart of the theory is a singularity condition that guarantees automation in the production of automated technologies. If that condition is satisfied, the functional share of capital approaches 100% in the long run.

A Sovereign Fund for India

(with Parikshit Ghosh), October 2019.

We propose that India build up a sovereign fund, to be invested in portfolios of equity, bonds and other financial assets, and managed professionally as any fund would be managed, subject to certain constraints that we describe in this paper. The proposal to access Indian corporate value consists of two parts: I. A one-time directive that will require every publicly traded Indian company to issue new shares to the government, equal to some fraction (say 10–20%) of their outstanding shares in the mar- ket. II. An ongoing obligation to transfer some given fraction (again 10–20%) of every new share issue — whether in the form of an initial public offering or an expansion of the existing share base — to the India Fund.

Aspirations and Economic Behavior

(with Garance Genicot), December 2019. Forthcoming, Annual Review of Economics.

This paper reviews the literature on aspirations in economics, with a particular focus on socially determined aspirations. The core theory builds on two fundamental principles: (a) aspirations can serve to inspire, but still higher aspirations can lead to frustration and resentment; and (b) aspirations are largely determined by an individual’s social environment. We discuss the implications of this framework for the study of interpersonal inequality, social conflict, fertility choices, risk taking and goal-setting.

Hindu-Muslim Violence in India: A Postscript from the 21st Century

(with Anirban Mitra), in Advances in the Economics of Religion (J-P Carvalho, S. Iyer and J. Rubin, eds.) Volume 158, International Economic Association Series, Palgrave Macmillan (2019).

Summary.  We revisit and extend the core issues studied in Mitra and Ray (2014). The main reason behind this retrospection is to check if the robust empirical patterns recorded there persist once we consider a longer time frame extending into the 21st century. We make three observations: (i) There is a clear economic component to violence, roughly along the lines of our earlier paper; (ii)  There is a new aspect which is assuming salience now — namely, a strong political component which is manifesting itself through the presence of BJP legislators; (iii) Ahmedabad exemplifies the ascendancy of this political component. 

Conflict and Development

(with Joan Esteban) Annual Reviews of Economics  9, 263-293, 2017.

Summary. In this review, we examine the links between economic development and social conflict. By economic development, we refer broadly to aggregate changes in per capita income and wealth or in the distribution of that wealth. By social conflict, we refer to within-country unrest, ranging from peaceful demonstrations, processions, and strikes to violent riots and civil war. We organize our review by critically examining three common perceptions: that conflict declines with ongoing economic growth; that conflict is principally organized along economic differences rather than similarities; and that conflict, most especially in developing countries, is driven by ethnic motives.

Aspirations and Inequality

(with Garance Genicot) Econometrica 85, 485-519, 2017. Online Appendix2009 version.

Summary. This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income, and the distribution of income evolve jointly.

Aspirations And The Development Treadmill

Journal of Human Development and Capabilities 17, 309–323, 2016.

Summary. I describe a positive theory of socially determined aspirations, and some implications of that theory for the study of economic inequality and social conflict. The main contribution of the theory is that it attempts to describe, in the same explanatory arc, how a change in aspirations can be inspirational in some circumstances, or a source of frustration and resentment in others. These different reactions arise from the aspirational gap: the difference between socially generated aspirations and the current socio-economic standard that the individual enjoys. Ever-accelerating economic development can cut both ways in terms of inspiration and frustration.

Implications of an Economic Theory of Conflict: Hindu-Muslim Violence in India

(with Anirban Mitra), Journal of Political Economy 122, 719-765, 2014.

Summary. We model intergroup conflict driven by economic changes within groups. We show that if group incomes are low, increasing group incomes raises violence against that group and lowers violence generated by it. We then apply the model to data on Hindu-Muslim violence in India. Our main result is that an increase in per capita Muslim expenditures generates a large and significant increase in future religious conflict. An increase in Hindu expenditures has a negative or no effect. These findings speak to the origins of Hindu-Muslim violence in post-Independence India. Online Appendix. Sequel.

Gender Differentials in Eye Care: Access and Treatment

(with Rajshri Jayaraman and Shing-Yi Wang), Economic and Political Weekly 49 No. 25, June 21, 2014. 

Summary. Two potential sources of gender bias in health care are (a) females access treatment later than males and (b) they receive differential care at the medical facility. We explore both of these for eye care at a large Indian medical facility.  At presentation, women have worse diagnoses than men for indicators of symptomatic illness, such as myopia and cataract. There is no difference in treatment.

Ethnicity and Conflict: An Empirical Study

(with Joan Esteban and Laura. Mayoral), American Economic Review 102, 1310-1342, 2012. Online Appendix.

Summary. We examine empirically the impact of ethnic divisions on conflict, by using a specification based on Esteban and Ray (2011). That theory links conflict intensity to three indices of ethnic distribution: polarization, fractionalization, and the Gini-Greenberg index. The empirical analysis verifies that these distributional measures are significant correlates of conflict. These effects persist as we introduce country-specific measures of group cohesion and of the importance of public goods, and combine them with the distributional measures exactly as described by the theory.

A Theory of Occupational Choice with Endogenous Fertility

(with Dilip Mookherjee and Silvia Prina), American Economic Journal: Microeconomics  4, 1–34, 2012.

Summary. Theories based on partial equilibrium reasoning alone cannot explain the widespread negative cross-sectional correlation between parental wages and fertility, without restrictive assumptions on preferences and childcare costs. We argue that incorporating a dynamic general equilibrium analysis of returns to human capital can help explain observed empirical patterns.

Status, Intertemporal Choice, and Risk-Taking

(with Arthur Robson), Econometrica  801505–1531 (2012). Online Appendix.

Summary. This paper studies endogenous risk-taking by embedding a concern for status (relative consumption) into an otherwise conventional model of economic growth. We prove that if the intertemporal production function is strictly concave, an equilibrium must converge to a unique steady state in which there is recurrent endogenous risk taking.

Ethnicity and Conflict: Theory and Facts

(with Joan Esteban and Laura Mayoral), Science 336, 858 – 865, 2012.

Summary. Over the second half of the 20th century, conflicts within national boundaries became increasingly dominant. Many (if not most) such conflicts involved violence along ethnic lines. On the basis of recent theoretical and empirical research, we provide evidence that preexisting ethnic divisions do influence social conflict. Our analysis also points to particular channels of influence. Specifically, we show that two different measures of ethnic division—polarization and fractionalization—jointly influence conflict, the former more so when the winners enjoy a “public” prize (such as political power or religious hegemony), the latter more so when the prize is “private” (such as looted resources, government subsidies, or infrastructures).

Linking Conflict to Inequality and Polarization

(with Joan Esteban), American Economic Review 101, 1345–1374, 2011.

Summary. In this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict. We show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the Gini coefficient, the Herfindahl-Hirschman fractionalization index, and a specific measure of polarization due to Esteban and Ray.

Aspirations, Segregation and Occupational Choice

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 139–168, 2010.

Summary. This paper examines steady states of an overlapping generations economy with a given distribution of household locations over a one-dimensional interval. The paper studies steady state configurations of skill acquisition, both with and without segregation, and studies the macroeconomic and welfare effects of segregation on aggregate economic outcomes.

Uneven Growth: A Framework for Research in Development Economics

Journal of Economic Perspectives 24 (3), Summer, 45-60, 2010.

Summary. In many developing countries, economic growth has been fundamentally uneven. This article takes the reality of “uneven growth” seriously, and uses it as an organizing device for a research program in Development Economics.

Social Interactions And Segregation In Skill Accumulation

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 1–13, 2010.

Summary. This paper studies human capital investment in a spatial setting with interpersonal complementarities. A mixture of local and global social interactions affect the cost of acquiring education, and the return to human capital is determined endogenously in the market.

Poverty and Disequalization

(with Dilip Mookherjee) Journal of Globalization and Development 1, Article 3, 2010.

Summary. We study the intergenerational transmission of inequality using a model in which parents can make both financial and occupational bequests to their children. An equal steady state with high per capita skill can co-exist with unequal steady states with low per capita skill. We investigate dynamics starting from arbitrary initial conditions.

Inequality and Markets: Some Implications of Occupational Diversity

(with Dilip Mookherjee), American Economic Journal Microeconomic2 38–76, 2010.

SummaryThis paper studies income distribution in an economy with borrowing constraints. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a “rich” set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment. 

On the Salience of Ethnic Conflict

(with Joan Esteban), American Economic Review 98:5, 2185–2202, 2008. Online Appendix.

Summary. “In much of Asia and Africa, it is only modest hyperbole to assert that the Marxian prophecy has had an ethnic fulfillment.” — Donald Horowitz (1985).

A Dynamic Incentive-Based Argument for Conditional Transfers

(with Dilip Mookherjee), Economic Record 84, S2–S16, 2008.

Summary. We compare the long-run (steady state) effects of replacing unconditional transfers to the poor by transfers conditional on education of children. Conditional transfers (funded by taxes on earnings of the skilled) are shown to generate higher long run output per capita and higher (utilitarian and Rawlsian) welfare.

Inequality and Inefficiency in Joint Projects

(with Jean-Marie Baland and Olivier Dagnelie), Economic Journal 117, 922-935, 2007.

SummaryA group of agents voluntarily participates in a joint project, in which efforts are not perfectly substitutable. The output is divided according to some given vector of shares. A share vector is unimprovable if no other share vector yields a higher sum of payoffs. We describe unimprovable share vectors.

An Extension of a Measure of Polarization, With an Application to the Income Distribution of Five OECD Countries

(with Joan Esteban and Carlos Gradín), Journal of Economic Inequality 5, 1–19, 2007.

Summary. We introduce an extension of the Esteban and Ray [Econometrica, 62:819–851 1994] measure of polarization that can be applied to density functions. As a by-product we also derive the Wolfson [Am. Econ. Rev., 84:353–358 1994] measure as a special case. This derivation has the virtue of casting both measures in the context of a (statistically) unified framework. We study the polarization of the distribution of household income for five OECD countries (LIS database): US, UK, Canada, Germany and Sweden.

Bargaining Power and Enforcement in Credit Markets

(with Garance Genicot), Journal of Development Economics 79, 398-412, 2006.

Summary. In a credit market with enforcement constraints, we study the effects of a change in the outside options of a potential defaulter on the terms of the credit contract, as well as on borrower payoffs. The results crucially depend on the allocation of “bargaining power” between the borrower and the lender. We prove that there is a crucial threshold of relative weights such that if the borrower has power that exceeds this threshold, her expected utility must go up whenever her outside options come down. But if the borrower has less power than this threshold, her expected payoff must come down with her outside options.  These disparate findings within a single model permit us to interpret existing literature on credit markets in a unified way.

 

Inequality, Lobbying, and Resource Allocation

(with J. Esteban), American Economic Review 96, 257–279 (2006). Supplementary Notes.

Summary. This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more “corrupt.”

On the Dynamics of Inequality

Economic Theory 29, 291–306, 2006.

Summary. The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies nonstationary equilibrium paths, and shows that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. This paper, in honor of Mukul Majumdar, publishes notes from 1990, which contain a different proof of the main result.

Aspirations, Poverty and Economic Change

in Abhijit Banerjee, Roland Benabou and Dilip Mookherjee, What Have We Learned About Poverty?, Oxford University Press, 2006.

Summary. Introduces the idea of aspirations as a socially determined reference point. The paper argues that reachable aspirations serve to inspire, while still higher aspirations could lead to frustration.

Persistent Inequality

(with Dilip Mookherjee), Review of Economic Studies 70, 369-393, 2003.

SummaryWhen human capital accumulation generates pecuniary externalities across professions, and capital markets are imperfect, persistent inequality in utility and consumption is inevitable in any steady state. 

Contractual Structure and Wealth Accumulation

(with Dilip Mookherjee), American Economic Review 92, 818–849, 2002. Online Appendix.

Summary. 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.

Is Equality Stable?

(with Dilip Mookherjee), American Economic Review (Papers and Proceedings) 92, 253–259, 2002.

Summary. We explore the view, further developed in our other work, that inequality is an inevitable consequence of the market mechanism.

Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra

(with Abhijit Banerjee, Dilip Mookherjee and Kaivan Munshi), Journal of Political Economy 109, 138-190, 2001.

SummaryThis paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members. . Predictions concerning the effect of the distribution of local landownership on sugarcane price, capacity levels, and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the Indian state of Maharashtra over the period 1971–93.

Wealth Constraints, Lobbying and the Efficiency of Public Allocation

(with Joan Esteban), European Economic Review 44, 694-705, 2000.

Summary. We formalize a model in which individuals lobby before the government in order to bene”t from some productivity-enhancing government action (infrastructures, direct subsidies, permissions, in short). The government honestly tries to allocate these permissions to the agents that will make the best use of them, as revealed by the intensity of their lobbying. If the marginal cost of resources varies with wealth, the amount of information transmitted through lobbying will depend on the degree of inequality. In this paper, we summarize the main approach and examine the special case of equal wealth. We show that the nature of signaling equilibria is critically a!ected by per-capita wealth.

Conflict and Distribution

(with Joan Esteban), Journal of Economic Theory 87, 379-415, 1999.

Summary. We develop a behavioral model that links the level and pattern of social conflict to the society-wide distribution of individual characteristics. The model can be applied to groups that differ in characteristics such as wealth, ethnicity, religion, and political ideology. We settle questions of existence and uniqueness of conflict equilibrium. Conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics. However, in general, the conflictdistribution relationship is nonlinear and surprisingly complex. Our results on conflict patterns also throw light on the phenomena of extremism and moderation.

Egalitarianism and Incentives

(with Kaoru Ueda), Journal of Economic Theory 71, 324-348, 1996.

Summary. A group of agents is collectively engaged in a joint productive activity. Each agent supplies an observable input, and output is then collectively shared among the members according a social welfare function. However, individual actions are taken on a selfish basis, and the collective decision is only made after inputs are chosen. This leads to inefficiency. The aim of this paper is to show formally that, contrary to popular belief, the degree of inefficiency decreases in the extent of egalitarianism embodied in the social welfare function.

On the Measurement of Polarization

(with Joan Esteban), Econometrica  62, 819–851, 1994.

Summary. This paper is concerned with the conceptualization and measurement of polarization. Suppose that a population is grouped into significantly-sized “clusters’,” such that each cluster is “similar” in terms of the attributes of its members, but different clusters have “dissimilar” attributes. In that case we would say that the society is “polarized.” We study these intuitive criteria carefully, and provide a theory of measurement.

Dynamic Equilibria With Unemployment Due to Undernourishment

(with Peter Streufert), Economic Theory 3, 61-85, 1993.

Summary. We describe steady states of a dynamic model with unemployment due to undernourishment. For many aggregate land stocks, there is a continuum of steady states, We suggest that certain land reforms can reduce unemployment.

Why Does Asset Inequality Affect Unemployment? A Study of the Demand Composition Problem

(with Jean-Marie Baland), Journal of Development Economics 35, 69-92, 1991.

Summary. This paper is devoted to a general equilibrium analysis of the relationship between the inequality in asset holdings and the aggregate levels of output and employment in a developing economy. Since luxuries and basic goods compete for the use of the same scarce resources, unemployment is conceived as a mechanism whereby the market demand for basic goods can be limited to a sufficiently low level so that the high demand for luxuries can be met. The ambiguous effects of capital accumulation on employment are also examined.

Constrained Egalitarian Allocations

(with Bhaskar Dutta), Games and Economic Behavior 3, 403-422, 1991.

Summary. This paper proposes a constrained egalitarian solution concept for TU games which combines commitment for egalitarianism and promotion of individual interests in a consistent manner. The paper shows that the set of constrained egalitarian allocations is nonempty for weakly superadditive games. The solution is “almost” unique if the desirability relation between players is complete.

A Concept of Egalitarianism Under Participation Constraints

(with Bhaskar Dutta), Econometrica 57, 615-635, 1989.

Summary. We introduce a new solution concept for transferable-utility games in characteristic function form, when individuals collectively believe in equality as a desirable social goal, although in their private actions they behave selfishly. This latter consideration implies that an “egalitarian solution” must satisfy core-like participation constraints, while the former implies that such a solution is also a Lorenz-maximal element of the constrained set. Despite the well-known fact that the Lorenz ordering is incomplete, we show that the egalitarian solution is unique whenever it exists.

Inequality as a Determinant of Malnutrition and Unemployment, II. Policy

(with Partha Dasgupta), Economic Journal 97, 177-188, 1987.

Summary. This is the second part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study policy options such as land reform.

Inequality as a Determinant of Malnutrition and Unemployment, I. Theory

(with Partha Dasgupta), Economic Journal 96, 1011-1034, 1986.

Summary. This is the first part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study the general equilibrium of such a framework and describe its properties.

An Economic Theory of Malnutrition

(with Partha Dasgupta), in I.S. Gulati and M. Shroff (eds.), Economic Theory and Underdevelopment: Essays in Honour of I.G. Patel, 1986.

Summary. An initial, sketchy version of the Dasgupta-Ray papers on involntary unemployment and undernutrition.