Wealth Inequality and Externalities from Ex Ante Skill Heterogeneity
Spyridon Lazarakis and
Jim Malley ()
No 6572, CESifo Working Paper Series from CESifo Group Munich
This paper develops an incomplete markets model with state dependent (Markovian) stochastic earnings processes and ex ante skill heterogeneity corresponding to being university educated or not. Using the Wealth and Assets Survey for Great Britain, we find that the university educated group has higher average wealth, higher earnings risk but lower within group wealth inequality. Using estimates of the earnings processes for each group to calibrate the model, we find wealth inequality within and between the groups that is consistent with the data. Moreover, the predictions for overall wealth inequality are closer to the data, compared to the benchmark model with ex ante identical households. In this framework, ex ante skill heterogeneity generates a between-group pecuniary externality which in turn leads to the predicted differences in wealth inequality between the groups and works as an amplification mechanism to increase overall wealth inequality.
Keywords: incomplete markets; education differences; pecuniary externalities (search for similar items in EconPapers)
JEL-codes: E21 E25 H23 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://www.cesifo-group.de/portal/page/portal/DocB ... 7/cesifo1_wp6572.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ces:ceswps:_6572
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Series data maintained by Klaus Wohlrabe ().