Inequality and Social Discounting

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Inequality and Social Discounting

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Title: Inequality and Social Discounting
Author: Werning, Ivan; Farhi, Emmanuel

Note: Order does not necessarily reflect citation order of authors.

Citation: Farhi, Emmanuel and Iván Werning. 2007. Inequality and social discounting. Journal of Political Economy 115(3): 365-402.
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Abstract: We explore steady-state inequality in an intergenerational model with altruistically linked individuals who experience privately observed taste shocks. When the welfare function depends only on the initial generation, efficiency requires immiseration: inequality grows without bound and everyone’s consumption converges to zero. We study other efficient allocations in which the welfare function values future generations directly, placing a positive but vanishing weight on their welfare. The social discount factor is then higher than the private one, and for any such difference we find that consumption exhibits mean reversion and that a steady-state, cross-sectional distribution for consumption and welfare exists, with no one trapped at misery.
Published Version: doi:10.1086/518741
Other Sources: http://web.mit.edu/iwerning/Public/inequality_social_screen.pdf
http://www.econ.umn.edu/macro/2005/farhi.pdf
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3451391

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  • FAS Scholarly Articles [6948]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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