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Wealth Inequality, Wealth Constraints and Economic Performance

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  • Bardhan, Pranab
  • Bowles, Samuel
  • Gintis, Herbert
Abstract
When asymmetry or non-verifiability of information, or non-excludability of users, makes contracts incomplete or unenforceable, and where for these and other reasons there are impediments to efficient bargaining, we show that private contracting will not generally assign the control of assets and the residual claimancy over income streams of projects to achieve socially efficient outcomes, suggesting that the policy relevance of the widely accepted "efficiency-equity tradeoff" should be seriously reconsidered. We illustrate these ideas with reference to misallocations in land, labor and credit markets. We also explore the consequences of redistributive policies for risk-taking and risk exposure when non-wealthy agents are risk-averse and for resolving collective action problems inherent in the provision of local public goods in the context of commons.

Suggested Citation

  • Bardhan, Pranab & Bowles, Samuel & Gintis, Herbert, 1999. "Wealth Inequality, Wealth Constraints and Economic Performance," Center for International and Development Economics Research, Working Paper Series qt3bh899fh, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:ciders:qt3bh899fh
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    More about this item

    Keywords

    inequality; agency problems; cooperation; team production; risk-aversion;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D3 - Microeconomics - - Distribution
    • D6 - Microeconomics - - Welfare Economics
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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