Market Integration, Risk-Taking, and Income Inequality

33 Pages Posted: 25 Jul 2023 Last revised: 1 Aug 2023

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Ron Kaniel

University of Rochester - Simon Business School; CEPR

Yizhou Xiao

The Chinese University of Hong Kong (CUHK)

Date Written: April 18, 2023

Abstract

A pandemic or nationalism can dial back global integration as much as advancements in IT and transportation spur it. We study a parsimonious general equilibrium model of occupational choice, risk-taking, and income inequality against backdrop of market (dis)integration and certain services in inelastic supplies. In a decentralized, segmented environment, entrepreneurship and risk-taking are inefficiently low; in an integrated market, they can be socially excessive and entrepreneurship is non-monotone in the service supply. As transportation and information technologies improve, occupational risk-taking and total production increase, with ambiguous welfare consequences. In a dynamic setting with inter-generational inheritance, wealth inequality is exacerbated by income inequality, but faces a long-term reversal when scarce service supply is affected by total production.

Keywords: Entrepreneurship, (De)Globalization, Relative Wealth

JEL Classification: E24, G12, G18, H23, J24, J31, J38

Suggested Citation

Cong, Lin and Kaniel, Ron and Xiao, Yizhou, Market Integration, Risk-Taking, and Income Inequality (April 18, 2023). Available at SSRN: https://ssrn.com/abstract=4513868 or http://dx.doi.org/10.2139/ssrn.4513868

Lin Cong (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ron Kaniel

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://rkaniel.simon.rochester.edu

CEPR ( email )

London
United Kingdom

Yizhou Xiao

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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