Equilibrium Income Inequality among Identical Agents

Scott John Freeman

Journal of Political Economy, 1996, vol. 104, issue 5, pages 1047-64

Abstract: The paper offers a theory of income differences in which income inequality exists and persists despite identical tastes and talents. Teams of unskilled labor supervised by schooled managers produce goods with increasing returns to scale. Agents are assumed unable to borrow to fund the human capital investment needed to become managers. Despite ex ante identical agents, the model displays the following equilibrium phenomena: (1) risk-averse agents accept fair gambles, implying an unequal ex post distribution of unearned income; (2) agents agree to publicly subsidize education, although those receiving the subsidy have the highest material wealth; and (3) incomes and educational differences are perpetuated from generation to generation. Copyright 1996 by University of Chicago Press.

Date: 1996
View citations in EconPapers

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-3808%2819961 ... O%3B2-G&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ucp:jpolec:v:104:y:1996:i:5:p:1047-64

Ordering information: This journal article can be ordered from
http://www.journals.uchicago.edu/JPE/order1.html

Access Statistics for this article

Journal of Political Economy is edited by Steven D. Levitt, MONIKA PIAZZESI, CANICE PRENDERGAST and ROBERT SHIMER

More articles in Journal of Political Economy from University of Chicago Press
Address: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
Series data maintained by Christopher F. Baum ().