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Author: | Rajan, R.G. Zingales, L. |
Title: | The tyranny of inequality |
Journal: | Journal of Public Economics
2000 : JUN, VOL. 76:3, p. 521-558 |
Index terms: | Equality Economic theory Efficiency Resource allocation Models |
Language: | eng |
Abstract: | When parties are very unequally endowed, agreement may be very difficult to reach, even if the specific transaction is easy to contract on, and fungible resources can be transferred to compensate for losing party. The various fungibility of the resource transferred makes it hard to restrict its use, changing the amount the parties involved spend in trying to grab future rents. This spillover effect can inhibit otherwise valuable transactions, as well as enable otherwise inefficient transactions. Agreement typically breaks down when required transfer is large and the proposed recipient of the transfer is relatively unproductive or poorly endowed. The implications of this model for theory of the optimal allocation of property rights are examined. |
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