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Inequality and Public Resource Allocation

Author

Listed:
  • Joan Esteban
  • Debraj Ray

Abstract

We set up a signaling game where individuals differ in ability and wealth. Higher ability means larger benefit supported by the government. Costly signals are used to transmit information regarding own deservingness. However, capital market imperfections may perturb the signals by limiting the capacity of poor people to send the appropriate signal. We examine the cost in efficiency produced by the existing inequality in the distribution of wealth.

Suggested Citation

  • Joan Esteban & Debraj Ray, 2003. "Inequality and Public Resource Allocation," Working Papers 47, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:47
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    References listed on IDEAS

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    More about this item

    Keywords

    Inequality; resource allocation; lobbying; imperfect capital markets;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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