The Tyranny of Inequality

53 Pages Posted: 18 Apr 2000

See all articles by Raghuram G. Rajan

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: May 1999

Abstract

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

Rajan, Raghuram G. and Zingales, Luigi, The Tyranny of Inequality (May 1999). CRSP Working Paper No. 423, Available at SSRN: https://ssrn.com/abstract=206508 or http://dx.doi.org/10.2139/ssrn.206508

Raghuram G. Rajan (Contact Author)

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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