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Wealth Inequality and the Exploration of Novel Technologies

Alessandro Spiganti

The B.E. Journal of Macroeconomics, 2023, vol. 23, issue 2, 753-790

Abstract: I investigate whether wealth inequality hinders the discovery of novel technologies in a competitive screening model. Agents can engage in exploration, which may lead to the discovery of superior technologies, but it is likely to waste time with inferior ones. Talented agents are better at weeding out inferior technologies, but talent is unobservable by lenders. When agents are poor, this causes an adverse selection problem whereby exploration is pursued by untalented agents rather than by talented ones. As economies become wealthier, the misallocation problem of talented agents weakens. Higher inequality worsens this misallocation problem when the economy is wealthy, but can increase efficiency in poor economies.

Keywords: inequality of opportunity; bandit problem; unobservable talent; competitive screening (search for similar items in EconPapers)
JEL-codes: D53 D82 O31 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejm-2022-0073

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