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Abstract:
This paper develops a tractable, heterogeneous agents general equilibrium model where individuals have different endowments of the factors that complement the schooling process. The paper explores the relationship between inequality of opportunities, inequality of outcomes, and efficiency in human capital formation. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a mean-preserving spread and a change in the support. The results suggest that a higher degree of inequality of opportunities is associated with a lower average level of human capital, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality. In other words, the model does not predict a trade-off between efficiency and equality of opportunity in human capital formation.

human capital, inequality, equity-efficiency trade-off

Abstract:
This paper develops a political economy model that provides an explanation as for why ruling elites in oligarchic societies may rely on income redistribution to the poor (the masses) in order to prevent them from attempting a revolution. We refer to this kind of redistribution as populist redistribution because, first it does not increase the poor's productive capacity (human capital), and second it seeks to "buy" political support (peace) to perpetuate the elite's control of political power. We examine the conditions under which ruling elites choose to deter the poor (by means of military repression and/or populist redistribution), to engage in a dispute with the poor for the control of political power, or, alternatively, to extend democracy. According to the results of the model populist redistribution (or military repression), if any, increases with initial wealth inequality and with the amount of redistribution that the poor can undertake under democracy, and decreases with the relative importance of a human capital externality in production. The model explains why in some cases the use of an apparently inefficient policy of populist redistribution turns out to be optimal for both groups (the ruling elite and the poor class) when the alternative is the use of military repression or default to conflict.

Populism, oligarchy, democracy, conflict, inequality

Abstract:
This paper develops a model of a war against the producers of illegal hard drugs. This war occurs on two fronts. First, to prevent the cultivation of crops that are the raw material for producing drugs the state engages the drug producers in conflict over the control of arable land. Second, to impede further the production and exportation of drugs the state attempts to eradicate crops and to interdict drug shipments. The model also includes an interested outsider who uses both a stick and a carrot to strengthen the resolve of the state in its war against drug producers. The results of the calibration of the model yield an estimate that from 2001 through 2003 subsidies from the United States to the Colombian armed forces under Plan Colombia caused a decrease in the exportation of drugs from Colombia to about 44 percent of what exportation was before Plan Colombia was implemented. The results of the calibration of the model also suggests that a more efficient allocation of the about $2 billion that the United States spent on Plan Colombia through 2003 would have involved larger subsidies to the conflict over control of arable land and smaller subsidies to eradication and interdiction efforts.