Rent-Seeking Induced Inequality Traps

35 Pages Posted: 12 Dec 2016

Date Written: December 5, 2016

Abstract

Does inequality affect rent-seeking and vice-versa? Social scientists have argued that inequality fosters rent-seeking and that rent-seeking is likely to reinforce existing inequalities. In this paper, I model rent-seeking in an unequal endowment economy to analyze the conditions under which an inequality trap would exist. I find that, in the short-run, a more unequal economy fosters a greater proportion of rentiers which in turn perpetuates existing inequities. In the long-run, as rentiers are able to change the rules of the game, the proportion of rentiers shrinks. However, both the amount of rents and ex-post inequality increase.

Keywords: inequality trap, rent-seeking, property rights, institutions, corruption

JEL Classification: D23, D31, D63, D72

Suggested Citation

Chaturvedi, Mayuri, Rent-Seeking Induced Inequality Traps (December 5, 2016). Available at SSRN: https://ssrn.com/abstract=2883723 or http://dx.doi.org/10.2139/ssrn.2883723

Mayuri Chaturvedi (Contact Author)

University of Liverpool ( email )

University of Liverpool Management School
Liverpool, L69 7ZH
United Kingdom

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