Inequality and Expectations in a Model of Technology Adoption and Growth

Surbhi Badhwar and Mausumi Das
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Surbhi Badhwar: Department of Economics, Delhi School of Economics
Mausumi Das: Department of Economics, Delhi School of Economics

No 274, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper highlights the role of initial wealth inequality in determining the technology adoption decision of firms, which in turn impacts upon the overall productivity in an economy. Wealth inequality interacts with producers’ expectations to generate mutiple equilibria: poor economies where initial wealth inequality is too high are perpetually stuck at a bad equilibrium with poor technology- economies with moderate degree of inequality can oscillate between the bad and the good equilibria depending on producers’ expectations- and rich economies with sufficiently low degree of wealth inequality always enjoy a self-sustaining good equilibrium, characterized by the adoption of advanced technology.

Pages: 33 pages
Date: 2017-04
New Economics Papers: this item is included in nep-gro
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