This Review presents basic facts regarding the long-run evolution of income and wealth inequality in Europe and the United States. Income and wealth inequality was very high a century ago, particularly in Europe, but dropped dramatically in the first half of the 20th century. Income inequality has surged back in the United States since the 1970s so that the United States is much more unequal than Europe today. We discuss possible interpretations and lessons for the future.

Inequality in the long run

Stationary sunspot equilibria in a finance constrained economy

Equilibrium models displaying endogenous fluctuations and chaos

This paper lists theoretical reasons why neoclassical models of one-sector growth imply that nations with identical economic structures need not converge to the same steady state or balanced growth path, and outlines the empirical significance and policy implications of conditional nonconvergence. We survey poverty traps in both convex and nonconvex economies with complete market structures. Among the potential causes of traps are subsistence consumption; distorted international trade in intermediate inputs; demographic transitions when fertility is endogenous; technological complementarities in the production of consumption goods, financial intermediation services, manufactures, or human capital; coordination failures among voters; various restrictions on borrowing; indivisibilities in human capital formation or child rearing; and monopolistic competition in product or factor markets.

https://www.jstor.org/stable/pdfplus/40215925.pdf

The Economics of Poverty Traps Part One: Complete Markets

Standard models of labor migration suggest that migration is induced by real income differentials across locations and will, ceteris paribus, serve to reduce those differentials. And yet there is evidence that growing spatial inequality may co-exist with increased migration from poorer to richer areas, at least over certain ranges. At a theoretical level, this raises the question of modeling opposing forces, for convergence and divergence, in a common framework, and identifying the precise conditions under which the tendency for convergence dominates, or is dominated by, the forces for divergence. A conventional route to introducing forces for divergence is to bring agglomeration effects into the standard setup. This paper explores an alternative route, based on a theoretical and empirical proposition of the migration literature, namely, that migration is a selective process. Focusing on skilled migration, the paper demonstrates the different forces in play that make selective migration a force for both divergence and convergence, and characterizes where each set of forces dominates. Finally, it explores the consequences for convergence of combining migration selectivity and agglomeration effects arising from migrant networks. Copyright 2005, Oxford University Press.

/pdf/migration-selectivity-and-the-evolution-of-spatial-l65n74e9wo.pdf

Migration selectivity and the evolution of spatial inequality

Equilibrium cycles in an overlapping generations economy with production

Diverging patterns with endogenous labor migration

We analyze the Pareto optimal contracts between lenders and borrowers in a model with asymmetric information. The model generalizes the Rothschild-Stiglitz pure adverse selection problem by including moral hazard. Entrepreneurs with unequal “abilities” borrow to finance alternative investment projects which differ in degree of risk and productivity. We determine the endogenous distribution of projects as functions of the amount of loanable funds, when lenders have no information about borrowers’ ability and technological choices. Then, we embed these results in a dynamic competitive economy and show that the average quality of the selected projects in equilibrium may be high in recessions and low in booms. This phenomenon may generate (a) multiple steady states, (b) a smaller impact of exogenous shocks on output relative to the full information case, (c) endogenous fluctuations.

Optimal debt contracts and moral hazard along the business cycle

Endogenous fluctuations in a two-sector overlapping generations economy

http://www.eief.it/files/2008/11/aje261.pdf

Pietro Reichlin

Papers

Equilibrium cycles in an overlapping generations economy with production

Diverging patterns with endogenous labor migration

Optimal debt contracts and moral hazard along the business cycle

Endogenous fluctuations in a two-sector overlapping generations economy

Asset prices, debt constraints and inefficiency