American Economic Review: Vol. 92 No. 4 (September 2002)
Print Article Summary Export Citation
Sign up for Email Alerts Follow us on Twitter
Contractual Structure and Wealth Accumulation
Mookherjee, Dilip, and Debraj Ray. 2002. "Contractual Structure and Wealth Accumulation ." American Economic Review, 92(4): 818-849.
Can historical wealth distributions affect long-run output and inequality despite "rational" saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and "history" does not matter eventually. (D31, D91, I32, O17, Q15)
Article Full-Text Access