Knowledge that Transforms

This paper develops a model of growth and income inequalities in the presence of imperfect capital markets, and it analyses the trickle-down effect of capital accumulation. Moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities. Three main conclusions are obtained from this model. First, when the rate of capital accumulation is sufficiently high, the economy converges to a unique invariant wealth distribution. Second, even though the trickle-down mechanism can lead to a unique steady-state distribution under laissez-faire, there is room for government intervention: in particular, redistribution of wealth from rich lenders to poor and middle-class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle-down process. Third, the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them: in other words, this model can generate a Kuznets curve.

With decreasing returns and first-best credit, the long-run interest rate and aggregate output are uniquely determined, and wealth dispersion among individuals or firms is irrelevant. Introducing credit rationing into the Solow model modifies these conclusions. Multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self-reinforcing through higher credit rationing and lower capital accumulation. The wealth accumulation process is ergodic in every steady state, but wealth mobility is lower with higher steady-state interest rates. Aggregate output is higher in steady states with lower interest rates because credit is better allocated. Short-run interest rate or distribution shocks can be self-sustaining and can have long-run effects on output through the induced dynamics of the wealth distribution and credit rationing.

The production of data, and the functioning of the market for observations, are universal concerns to all fields of positive economics. Economists, however, have typically placed greater emphasis on systematically analyzing the consumption of data than on considering its production. In the production of data through surveys, an important input market is that of labor, in which a demander trades observations with the supplying sample members. This paper analyzes optimal monopsony compensation in such data markets, the important relationship it bears to estimation using the data that are obtained, and the statistical effects of implicit public wage regulations that are present in U.S. markets for observations. Copyright 1997 by The Review of Economic Studies Limited.

This paper studies a principal-agent relationship in which either the principal or a supervisor can monitor the agent's hidden action by the use of identical monitoring technologies. We assume that signals are private information and commitment to monitoring is not possible. We show that delegation of monitoring is profitable. With delegation the principal can better regulate incentives (incentive-effect) and commit to a broader range of wage structures (commitment-effect). We introduce collusion to find an endogenous bound on rewards and show that collusion limits the commitment-effect, but due to the incentive-effect delegation remains profitable.

Anscombe and Aumann showed that if one accepts the existence of a physical randomizing device such as a roulette wheel then Savage's derivation of subjective expected utility can be considerably simplified. They, however, invoked compound gambles to define their axioms. We demonstrate that the subjective expected utility derivation can be further simplified and need not invoke compound gambles. Our simplification is obtained by closely following the steps by which probabilities and utilities are elicited.