The Tyranny of Inequality
53 Pages Posted: 18 Apr 2000
Date Written: May 1999
This paper focuses on the externality that a contractual transfer of fungible resources can have on future interactions. The very fungibility of the resource transferred make it hard to restrict its use, changing the amount the parties involved spend in trying to grab future rents. This spill-over effect can inhibit otherwise valuable transactions, as well as enable otherwise ineffcient transactions. Agreement typically breaks down when the required transfer is large and the proposed recipient of the transfer is relatively unproductive or poorly endowed. We examine the implications of this model for a theory of the optimal allocation of property rights.
Note: A revised version of this paper is forthcoming in Journal of Public Economics.
JEL Classification: C78, D82
Suggested Citation: Suggested Citation