Review of Economic Studies Vol. 90 No. 4 2023
Wealth Dynamics in Communities
Abstract
This article develops a model to explore how favour exchange influences wealth dynamics. We identify a key obstacle to wealth accumulation: wealth crowds out favour exchange. Therefore, households must choose between growing their wealth and accessing favour exchange. We show that low-wealth households rely on favour exchange at the cost of having tightly limited long-term wealth. As a result, initial wealth disparities persist and can even grow worse. We then explore how communities and policymakers can overcome this obstacle. Using simulations, we show that community benefits and place-based policies can stimulate both saving and favour exchange, and in some cases, can even transform favour exchange into a force that accelerates wealth accumulation.
- DOI
- 10.1093/restud/rdac057
- Volume
- 90
- Issue
- 4
- Pages
- 1642-1668
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref