This paper develops a theory in which society-wide economic outcomes shape individual aspira-tions, which affect the investment incentives of individuals. Through its impact on investments, aspirations in turn affect ambient social outcomes. We explore this two-way link. A central feature is that aspirations that are moderately above an individual’s current standard of living tend to encourage investment, while still higher aspirations may lead to frustration and lower investment. When integrated with the feedback effect from investment, we are led to a the-ory in which aspirations and income evolve jointly, and the social determinants of preferences play an important role. We examine conditions under which growth is compatible with long-run equality in the distribution of income. More generally, we describe steady state income distri-butions, which are typically clustered around local poles. Finally, the theory has predictions for the growth rates along the cross-section of income. We use these predictions to calibrate the model so that it fits growth data by income percentile for 43 countries, and back out the implicit aspirations-formation process that underlies these observations.

Harsanyi (1974) criticized the von Neumann–Morgenstern (vNM) stable set for its presumption that coalitions are myopic about their prospects. He proposed a new dominance relation incorporating farsightedness, but retained another feature of the stable set: that a coalition S can impose any imputation as long as its restriction to S is feasible for it. This implicitly gives an objecting coalition complete power to arrange the payoffs of players elsewhere, which is clearly unsatisfactory. While this assumption is largely innocuous for myopic dominance, it is of crucial significance for its farsighted counterpart. Our modification of the Harsanyi set respects “coalitional sovereignty.” The resulting farsighted stable set is very different from both the Harsanyi and the vNM sets. We provide a necessary and sufficient condition for the existence of a farsighted stable set containing just a single-payoff allocation. This condition roughly establishes an equivalence between core allocations and the union of allocations over all single-payoff farsighted stable sets. We then conduct a comprehensive analysis of the existence and structure of farsighted stable sets in simple games. This last exercise throws light on both single-payoff and multi-payoff stable sets, and suggests that they do not coexist.

We study collaborative work in pairs when potential collaborators are motivated by the reputational implications of (joint or solo) projects. In equilibrium, individual collaboration strategies both influence and are influenced by the public assignment of credit for joint work across the two partners. We investigate the fragility of collaboration to small biases in the public’s credit assignment. When collaborators are symmetric, symmetric equilibria are often fragile, and in nonfragile equilibria individuals receive asymmetric collaborative credit based on payoff-irrelevant “identities.” We study payoff distributions across identities within asymmetric equilibria, and compare aggregate welfare across symmetric and asymmetric equilibria. (JEL A11, D82, I23)

Alphabetical name order is the norm for joint publications in economics. However, alphabetical order confers greater benefits on the first author. In a two-author model, we introduce and study certified random order: the uniform randomization of names made universally known by a commonly understood symbol. Certified random order (i) distributes the gain from first authorship evenly over the alphabet; (ii) allows either author to signal when contributions are extremely unequal; (iii) will invade an environment where alphabetical order is dominant; (iv) is robust to deviations; (v) may be ex ante more efficient than alphabetical order; and (vi) is no more complex than the existing alphabetical system modified by occasional reversal of name order. (JEL A14, Z13)

When human capital accumulation generates pecuniary externalities across professions, and capital markets are imperfect, persistent inequality in utility and consumption is inevitable in any steady state. This is true irrespective of the degree of divisibility in investments. However, divisibility (or fineness of occupational structure) has implications for both the multiplicity and Pareto-efficiency of steady states. Indivisibilities generate a continuum of inefficient and efficient steady states with varying per capita income. On the other hand, perfect divisibility typically implies the existence of a unique steady state distribution which is Pareto-efficient.

A classical theme in social analysis views economic class divisions as the main cause of social conflict. Yet many, if not most of the conflicts we observe today appear to be ethnic in nature. It appears that the "vertical" nature of class divisions is often dominated by the "horizontal" antagonisms across groups delineated by noneconomic markers. This paper highlights the perverse synergy of economic inequality within ethnic groups, and its role in the salience of ethnic conflict. In a model of group formation which allows both class and ethnic groupings to emerge, we show that ethnic, as opposed to class, conflict may be focal, and precisely in the presence of economic inequality. (JEL D72, D74)

This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more “corrupt.”

Economic inequality is of interest not only at some intrinsic level, but also for its close connections to diverse variables, ranging from economic indicators such as growth rates to sociopolitical outcomes such as collective action and conflict.It is only natural, then, to study the evolution of inequality in an economic system.It is fair to say that the dominant view on this topic is that inequality is the outcome of a constant battle between convergence and "luck" (Gary Becker and Nigel Tomes, 1979).Current asset inequalities may echo into the future, but their natural tendency is to die out (owing to a convex investment technology).Disparities are only sustained through ongoing stochastic shocks (see also David Champernowne, 1953;Glenn Loury, 1981).A second approach emphasizes that initial conditions determine final outcomes, owing principally to a nonconvex investment technology (see e.g.

Can historical wealth distributions affect long-run output and inequality despite “rational” saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and “history” does not matter eventually.

We model intergroup conflict driven by economic changes within groups. We show that if group incomes are low, increasing group incomes raises violence against that group and lowers violence generated by it. We then apply the model to data on Hindu-Muslim violence in India. Our main result is that an increase in per capita Muslim expenditures generates a large and significant increase in future religious conflict. An increase in Hindu expenditures has a negative or no effect. These findings speak to the origins of Hindu-Muslim violence in post-Independence India.