THE DYNAMIC COST AND PERSISTENCE OF ASSET INEQUALITY IN AN AGRARIAN ECONOMY

A growing literature suggests that inequality is economically costly. However, much of this literature depends on static analyses, begging the question of why a market system doesn't redress inequality over time if it is efficient to do so. We develop a dynamic model of asset accumulation and endogenous asset-price formation in an agrarian economy with multiple market imperfections. The model is parameterized to pre-revolutionary Nicaragua and solved numerically. The results suggest that although a free land market would eventually lead to an egalitarian land distribution, the process would take long enough, and involve sufficiently great factor-use inefficiencies along the way, that a redistributive policy would improve on the market's performance in both equity and efficiency criteria.


Subject(s):
Issue Date:
1998
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/12644
Total Pages:
40
Series Statement:
Staff Paper 416




 Record created 2017-04-01, last modified 2017-08-23

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