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Capital Markets, Information Aggregation and Inequality: Theory and Experimental Evidence

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  • Grüner, Hans Peter

Abstract

In most industrialized economies, financial wealth is distributed far more unequally than income. According to Wolff (2007) more than half of the American households possess almost no productive capital while realizing about 20 percent of national income. This mismatch poses a problem for the efficient aggregation of consumer needs on capital markets. Individuals use information about their own preferences as consumers to identify profitable investments. Under certain conditions, this behaviour efficiently matches future demand with productive capacity, thus replacing future markets for consumer goods. However, when wealth is distributed too unequally, capacity cannot match consumer needs. I present some first experimental evidence in favour of consumption driven investment behaviour based on real portfolio choices and self-reported preferences about consumer goods.

Suggested Citation

  • Grüner, Hans Peter, 2008. "Capital Markets, Information Aggregation and Inequality: Theory and Experimental Evidence," CEPR Discussion Papers 6750, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6750
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    Cited by:

    1. Hans Peter Grüner, 2009. "Kapitalbeteiligung von Mitarbeitern. Eine Bewertung der jüngsten Vorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(2), pages 175-188, May.

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    More about this item

    Keywords

    Consumption driven investment; Wealth distribution; Capital markets; Information aggregation;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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