imprecise information disclosure and truthful certification abstract this article studies the interaction of information disclosure and reputational concerns in certification markets we argue that by revealing information less precisely a certifier reduces the threat of capture because this reduces her gains from selling fraudulent certificates as a result only imprecise disclosure rules are implementable for intermediate discount factors our results therefore suggest that contrary to the common view imprecise disclosure may be socially desirable regulatory intervention may provoke market failure especially in industries where certifier reputational rents are low

is economic growth good for the poor tracking low incomes using general means in this paper we propose the use of an alternative methodology to track low incomes based on atkinson s 1970 family of equally distributed equivalent income functions which are called general means here we provide a new characterization of general means that justifies their use in this context our method of evaluating the effects of growth on poor incomes is based on a comparison of growth rates for two standards of living the ordinary mean and a bottom sensitive general mean the motivating question is to what extent is growth in the ordinary mean accompanied by growth in the general mean a key indicator in this approach is the growth elasticity of the general mean or the percentage change in the general mean over the percentage change in the usual mean our empirical analysis estimates this growth elasticity for a data set containing 144 household surveys from 20 countries over the last quarter century among other results we find that the growth elasticity of bottom sensitive general means is positive but significantly smaller than one this suggests that the incomes of the poor do not grow one for one with increases in average income

can foreign aid reduce income inequality and poverty this paper s goal is to examine the effect of foreign aid on income inequality and poverty reduction for the period 1971 2002 since simple cross country regressions cannot be taken as true time series findings we focus on dynamic panel data techniques which allow accounting for potential simultaneity and heterogeneity problems we find some weak evidence that foreign aid is conducive to the improvement of the distribution of income when the quality of institutions is taken into account however this result is not robust this finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions

the transition to the knowledge economy labor market institutions and income inequality in advanced democracies the transition from fordism to the knowledge economy in the world s advanced democracies was underpinned by the revolution in information and communications technology ict the introduction and rapid diffusion of ict pushed up wages for college educated workers with complementary skills and allowed top managers and ceos to reap greater rewards for their own talents despite these common pressures income inequality did not rise to the same extent everywhere income in the anglo saxon countries remains particularly unequally distributed to shed new light on this puzzle the authors carry out a panel data analysis of eighteen oecd countries between 1970 and 2007 their analysis stands apart from the existing empirical literature by taking a comparative perspective the article examines the extent to which the relationship between the knowledge economy and income inequality is influenced by national labor market institutions the authors find that the expansion of knowledge employment is positively associated with both the 90 10 wage ratio and the income share of the top 1 percent but that these effects are mitigated by the presence of strong labor market institutions such as coordinated wage bargaining strict employment protection legislation high union density and high collective bargaining coverage the authors provide robust evidence against the argument that industrial relations systems are no longer important safeguards of wage solidarity in the knowledge economy

human capital inequality and economic growth some new evidence this paper provides new measures of human capital inequality for a broad panel of countries taking attainment levels from barro and lee 2001 we compute gini coefficients and the distribution of education by quintiles for 108 countries over five year intervals from 1960 to 2000 using this new cross country data on human capital inequality two main conclusions are obtained first most countries in the world have tended to reduce the inequality in human capital distribution second human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations

middlemen as guarantors of quality abstract we analyze an experience good model with producer moral hazard which is based on shapiro quarterly journal of economics 1983 98 659 679 we develop conditions under which a good will be sold through a middleman instead of being sold directly by the producer when selling costs may even be increased by the presence of middlemen middlemen help to alleviate the producer moral hazard problem by dropping a producer s good and lowering her future sales if the good is not of its claimed quality the middleman engages in this policing activity in order to maintain his own reputation as a seller of high quality goods

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

a distributional theory of government growth this article presents a closed form solution for time consistent taxation and public spending in a dynamic game between government and median voter extending meltzer and richard s static analysis of government size the article offers a theory of growth of government at low stages of economic development the median voter identified as a relatively poor worker prefers to have no or only small redistributive taxation in order to foster savings through this channel he expects improvements of his labor productivity and wage at higher stages of development however when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller the incentive to tax and redistribute income rises yet in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times hence government growth is solely driven by an expanding welfare state

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

endogenous trade policy through majority voting an empirical investigation abstract the median voter approach to trade policy determination within a heckscher ohlin framework as in mayer am econ rev 74 5 1984 970 predicts that an increase in inequality holding constant the economy s overall relative endowments raises trade barriers in capital abundant economies and lowers them in capital scarce economies we find support for this prediction using cross country data on inequality capital abundance and diverse measures of protection we perform certain robustness checks that include controlling for the effects of political rights and schooling as well as using alternative datasets on factor endowments

inequality and the instability of polity and policy we create alternative measures of political instability which capture only movements from dictatorship to democracy and vice versa and unlike older well known measures does not capture government changes that preserve the democratic or dictatorial structure of the country we show that inequality is positively correlated with our measures of political instability as well as with a well known measure used by alesina and perotti but the impact of inequality on the latter is only through components of political instability captured by our measures we show that our measures have significant policy implications political instability increases both fiscal and trade polity volatility

inequality and development evidence from semiparametric estimation with panel data abstract evidences from nonparametric and semiparametric unbalanced panel data models with fixed effects show that kuznet s inverted u relationship is confirmed when economic development reaches a threshold the model tests justify semiparametric specification the integrated net contribution of control variables to inequality reduction is significant

certification under oligopolistic competition in a symmetric duopolistic market where each firm s choice regarding certain quality attributes such as the environmental friendliness of its product is its own private information the extent of horizontal differentiation between firms plays a crucial role in a certifier s optimal certification policy under a non profit certifier it is always the case that both firms produce the highest quality and opt for certification this is also the case under a for profit certifier but only when the degree of horizontal differentiation is sufficiently high when horizontal differentiation is low the for profit certifier by charging a very high certification fee creates maximum vertical differentiation between firms as a result only one firm produces the highest quality and opts for certification whereas the other firm produces the lowest quality and does not opt for certification this asymmetry under a for profit certifier makes the market inefficient which provides one possible explanation for the existence of mostly non profit certifiers in such markets

the value of recommendations abstract many markets without repeated seller buyer relations feature third party monitors that sell recommendations we analyze the profit maximizing recommendation policies of such monitors in an infinitely repeated game with seller moral hazard and short lived consumers a monopolistic monitor with superior information about the seller s past effort decisions sells recommendations about the seller to consumers we show that the monitor has an incentive to make its recommendations hard to predict which in general leads to inefficient effort provision by the seller these results hold under perfect and imperfect monitoring and in a variety of informational setting when there are multiple competing sellers the conflict between the monitor s profit maximization objective and efficient effort provision is mitigated

global inequality and international trade the paper analyses the effect of widespread trade liberalisation on global income inequality the analysis of the trend in global inequality during 1981 97 presented in the first part of the paper shows that the apparent growth of income inequality among countries conceals a process of convergence some developing countries achieved significantly faster economic growth than the advanced industrialised countries and though small in number they actually account for a majority of the population of the developing world thus international inequality i e the inequality of distribution of per capita incomes among the world s population in fact declined even though the inter country income inequality increased the analysis in the second part of the paper shows i that while improved trade performance did have a stimulating effect on growth performance of countries trade liberalisation had extremely varied effects on trade performance across countries and ii that the distribution of benefits and costs of trade liberalisation across countries has been such as to reduce international inequality without affecting inter country inequality copyright 2004 oxford university press

a model of biased intermediation this paper studies situations in which some consumers rely on a potentially biased intermediary to choose among downstream firms we introduce the notion that firms and consumers payoffs can be congruent or conflicting and show that this has important implications for the effects of bias under congruence the firm towards which the intermediary is biased invests more than its rival and consumers can be better off than under no bias under conflict bias hurts consumers and the favored firm charges higher prices we study various oft proposed policies for dealing with a biased intermediary and show that the efficacy of each intervention depends strongly on whether the environment exhibits congruence or conflict we discuss how the model relates to recent issues in online markets

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

natural resource booms and inequality theory and evidence we develop a theory in the context of a two sector growth model in which learning by doing drives growth to explain the time path of income inequality following natural resource booms in resource rich countries under the condition of a relatively unskilled labor intensive non traded sector inequality falls immediately after a boom and then increases steadily over time until the initial impact of the boom disappears using data for 90 countries between 1965 and 1999 we find evidence in support of the theory especially for oil and mineral booms we also find that uncertainty about future commodity prices increases long run inequality

institutional traps and economic growth this article s point of departure is that low quality institutions concentration of political power and material wealth and underdevelopment are persistent over time its analytical model views an equal distribution of political power as a commitment device to enhance institutional quality thereby promoting growth the politically powerful coalition contemplates relinquishing of its power through democratization weighing this advantageous consequence against the limit on own appropriative ability that it entails the possibility of two developmental paths is exhibited with concentration of political and economic power low quality institutions and slow growth and a more equal distribution of political and economic resources high quality institutions and faster growth

the value of delegated quality control this paper studies the case in which a firm delegates quality control to an independent monitor in a repeated game consumers trust provides incentives to acquire information about whether the good is defective and withhold defective goods from sale if third party reports are observable to consumers delegation lessens the first and dispenses with the second moral hazard concern but also creates agency costs internal quality control is optimal only if trades are sufficiently frequent and consumer information is sufficiently precise this result holds in the presence of the possibility of collusion fully non verifiable presale information and economies of scale in external quality control

growth and poverty evidence for developing countries in the 1980s abstract measures of consumption poverty for a sample of developing countries in the 1980s respond elastically to changes in mean consumption although there is a high variance in poverty outcomes at a given rate of growth there is no sign of systematic effects of growth on inequality

is financial globalization beneficial this lecture examines whether financial globalization is beneficial to developing countries by first examining the evidence on financial development and economic growth and concludes that financial development is indeed a key element in promoting economic growth it then asks why if financial development is so beneficial it often does not occur it then goes on to examine whether globalization particularly of the financial kind can help encourage financial and economic development and argues that it can however financial globalization does not always work to encourage economic development because it often leads to devastating financial crises the issue is thus not whether financial globalization is inherently good or bad but whether it can be done right

macroeconomic adjustment and the poor analytical issues and cross country evidence the author studies the links between macroeconomic adjustment and poverty first he summarizes some of the recent evidence on poverty in the developing world second he reviews the various channels through which macroeconomic policies affect the poor third the author emphasizes the role of the labor market he develops an analytical framework that captures some of the main features of the urban labor market in developing countries and studies the effects of fiscal adjustment on wages employment and poverty fourth he presents cross country regressions linking various macroeconomic and structural variables to poverty the author finds that output growth and real exchange rate depreciations tend to lower poverty while illiteracy income inequality and macroeconomic volatility tend to increase poverty in addition the impact of growth on poverty appears to be asymmetric and to result from a significant relationship between episodes of increasing poverty and negative growth rates

do journals accept too many papers abstract this paper provides a theoretical model for analyzing the behavior of peer reviewed journals it finds that apart from natural human errors inefficiencies arise purely for reasons of inter journal strategic behavior specifically as a result of competition journals tend to set their quality cut offs excessively low

ratings quality over the business cycle credit rating agencies cras have long held that reputational concerns discipline their behavior the value of reputation however depends on economic fundamentals that vary over the business cycle in a model of ratings incorporating endogenous reputation and a market environment that varies we find that ratings quality is countercyclical specifically a cra is more likely to issue less accurate ratings when fee income is high competition in the labor market for analysts is tough and securities default probabilities are low persistence in economic conditions can diminish our results while mean reversion exacerbates them the presence of naive investors reduces overall quality but quality remains countercyclical finally we demonstrate that competition among cras yields similar results

certification and market transparency we provide elementary insights into the effectiveness of certification to increase market transparency in a market with opaque product quality sellers use certification as a signaling device while buyers use it as an inspection device this difference alone implies that seller certification yields more transparency and higher social welfare under buyer certification profit maximizing certifiers further limit transparency but because seller certification yields larger profits active regulation concerning the mode of certification is not needed these findings are robust and widely applicable to for instance patents automotive parts and financial products

the life cycle of regulatory agencies dynamic capture and transaction costs the dynamics of regulation is analysed in a model where regulatory capture comes from the repeated interaction between an interest group and a regulatory agency regulatory institutions offer a framework for this dynamic process they put constraints on the interest group s influence the dynamics of regulation and its long run outcome depend on the political principal s the regulator s and the regulated firm s time preferences and their information some foundations for the transaction costs of side contracting used in the standard literature on collusion are provided those transaction costs are linked to the precise nature of regulatory institutions

strategic certification and provision of quality we study the effect of the presence of a certification intermediary in an environment where information asymmetries are particularly severe the intermediary improves the information that buyers have about quality this in turn increases the incentives that the seller has to provide high quality goods efficiency is increased by the presence of the intermediary but quality is underprovided in equilibrium relative to full information the intermediary can implement the optimal policy in many ways the amount of information revealed ranges from full disclosure to partial noisy disclosure

finance and income inequality what do the data tell us although there are distinct conjectures about the relationship between finance and income inequality little empirical research compares their explanatory power we examine the relationship between finance and income inequality for 83 countries between 1960 and 1995 because financial develop ment might be endogenous we use instruments from the literature on law finance and growth to control for this our results suggest that in the long run inequality is less when financial development is greater consistent with galor and zeira 1993 and banerjee and newman 1993 although the results also suggest that inequality might increase as financial sector development increases at very low levels of financial sector development as suggested by greenwood and jovanovic 1990 this result is not robust we reject the hypothesis that financial development benefits only the rich our results thus suggest that in addition to improving growth financial development also reduces inequality

the institutional foundations of inequality and growth abstract after a decade of research the effect of inequality on long run economic growth remains unresolved in part because researchers have treated omitted variable bias as an estimation problem rather than a deeper question of causality in this article we argue that the key omitted variable is the quality of economic institutions using both cross country and panel data specifications we find no direct effect of inequality on growth in the long run rather the protection of property rights simultaneously raises growth rates and reduces income inequality we interpret these findings as evidence that insecure property rights disproportionately disadvantage the poor

education economic growth and measured income inequality in this paper education simultaneously affects growth and income inequality more education does not necessarily decrease inequality when the latter is assessed by the lorenz dominance criterion increases in education first increase and then decrease growth as well as income inequality when measured by the gini coefficient there is no clear functional relationship between growth and measured income inequality the model identifies regimes of this relationship which depend crucially on the production and schooling technology conventional growth regressions with human capital and inequality as regressors may miss the richness of the underlying nonlinearities but viewed as approximations may still provide important information on the nonlinear relationship between growth and education

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

semiparametric bayesian inference of the kuznets hypothesis abstract in contrast to the parametric quadratic specification used for examining the kuznets hypothesis this study relies on the semiparametric bayesian inference of the partially linear regression to re assess the validity of an inverted u shape of the kuznets curve the simple framework permits us to perform estimation and model comparison in a unified way empirical results using cross sectional data on 75 countries indicate that there exists an approximately inverted hence asymmetric relation between inequality and per capita gdp moreover judged by the bayes factor overwhelming evidence is found in favor of our semiparametric specification finally robustness check using alternative measure of inequality and pool data confirms our findings

when is growth pro poor evidence from a panel of countries abstract growth is pro poor if the poverty measure of interest falls according to this definition there are three potential sources of pro poor growth a a high growth rate of average incomes b a high sensitivity of poverty to growth in average incomes and c a poverty reducing pattern of growth in relative incomes i empirically decompose changes in poverty in a sample of developing countries during the 1980s and 1990s into these three components in the medium to long run most of the variation in changes in poverty can be attributed to growth in average incomes suggesting that policies and institutions that promote broad based growth should be central to the pro poor growth agenda most of the remainder of the variation in changes in poverty is due to poverty reducing patterns of growth in relative incomes rather than differences in the sensitivity of poverty to growth in average incomes cross country evidence provides relatively little guidance as to the policies and institutions that promote these other sources of pro poor growth

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

looking beyond averages in the trade and poverty debate there has been much debate about how much poor people in developing countries gain from trade openness as one aspect of globalization the paper views the issue through both macro and micro empirical lenses the macro lens uses cross country comparisons and aggregate time series data the micro lens uses household level data combined with structural modeling of the impacts of specific trade reforms case studies are presented for china and morocco both the macro and micro approaches cast doubt on some widely heard generalizations from both sides of the globalization debate additionally the micro lens indicates considerable heterogeneity in the welfare impacts of trade openness with both gainers and losers among the poor a number of covariates of the individual gains are identified the results point to the importance of combining trade reforms with well designed social protection policies

opening a can of worms the pitfalls of time series regression analyses of income inequality this paper argues that time series regression analysis is of only very limited use for understanding the determinants of income inequality the argument is based on a combination of results from the time series econometrics literature and several characteristics of inequality itself principally nonstationarity of the data in most inequality regression models and the weak theoretical foundations underlying the models a sample of postwar us data is used to illustrate the problems involved

does aid affect inequality we show that there was a negative correlation between pro poor aid and inequality in the period before the mid 2000s this article provides an explanation for this observed relationship using pane

growth inequality and poverty looking beyond averages the evidence is compelling that the poor in developing countries do typically share in the gains from rising aggregate affluence and in the losses from aggregate contraction but how much do poor people share in growth do they gain more in some settings than others do some gain while others lose does pro poor growth mean more or less aggregate growth recent theories and evidence suggest some answers but deeper microeconomic empirical work is needed on growth and distributed change only then will we have a firm basis for identifying the specific policies and programs needed to complement and possibly modify growth oriented policies

on the effect of aggregate uncertainty on certification intermediaries incentives to distort ratings abstract we analyze a certification intermediary s incentives to distort ratings in a model with a monopolistic profit maximizing certification intermediary a continuum of heterogeneous sellers and a competitive market of risk neutral buyers the value of a seller s good is known to the seller and observable by the certifier but not by buyers sellers can choose to get a rating the certification intermediary can reveal a signal of arbitrary precision about the quality of the good in contrast to the existing literature we allow aggregate uncertainty as in the existing literature one rating class is optimal however the certification intermediary does not generally choose a socially optimal cutoff the certifier is more likelyto be too lenient if the distribution of aggregate uncertainty has a lower mean a higher variance and is more left skewed it is more likely to be too strict if the opposite holds

true world income distribution 1988 and 1993 first calculation based on household surveys alone the paper derives world income or expenditure distribution of individuals for two years 1988 and 1993 it is the first paper to calculate world distribution for individuals based entirely on household survey data from 91 countries and adjusted for differences in purchasing power parity between the countries measured by the gini index inequality increased from an already very high 63 in 1988 to 66 in 1993 the increase was driven more by rising differences in mean incomes between the countries than by rising inequalities within countries the most important contributors were rising urban rural differences in china and slow growth of rural incomes in south asia compared to several large developed market economies

promise and pitfalls in the use of secondary data sets income inequality in oecd countries as a case study this paper examines the role of secondary data sets in empirical economic research taking the field of income distribution as a case study we illustrate problems faced by users of secondary statistics showing how both cross country comparisons and time series analysis can depend sensitively on the choice of data after describing the genealogy of secondary data sets on income inequality we consider the main methodological issues and discuss their implications for comparisons of income inequality across oecd countries and over time the lessons to be drawn for the construction and use of secondary data sets are summarized at the end of the paper

growth elasticity of poverty direct estimates from recent data using recent poverty data for developing countries elasticity of 2 poverty headcount with respect to the growth of gross domestic product gdp per capita is directly calculated for the 1990s and the 2000s the global estimate is around 0 84 which is much smaller in absolute magnitude than what some highly influential studies have reported or used for the poverty dense south asia region the elasticity is of the order of 0 22 which is a dramatic contrast from the previous estimates for india where the number of poor people is by far the largest of any country and where the poverty rate is higher than even in sub saharan africa ssa the elasticity is of the order of 0 13 which is an even bigger contrast from earlier studies policymakers and researchers are urged to keep these estimates in mind while judging the likely effect of income growth on poverty and to discount poverty reduction claims based on higher elasticity estimates that have been reported or used in many influential studies i

macroeconomic performance and poverty in brazil abstract drawing on brazilian time series data this study finds an inelastic link between poverty and wages over the macroeconomic cycle that is devoid of the asymmetric effects that characterise the phenomenon s response to changes in the rate of unemployment deepening of structural reforms in the second half of the 1990s had no effect on the aforementioned relationships which also varied little by regional level of development finally the connection between poverty and long term income changes was more elastic suggesting an association between the economy s recent disappointing performance in alleviating poverty and its lacklustre growth record over the past two decades

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

the slowdown of the economics publishing process over the last three decades there has been a dramatic slowdown of the publication process at top economics journals a substantial part is due to journals requiring more extensive revisions various explanations are considered democratization of the review process increases in the complexity of papers growth of the profession and cost and benefit arguments changes in the profession are examined using time series data connections between these changes and the slowdown are examined using paper level data there is evidence for some explanations but most of the slowdown remains unexplained changes may reflect evolving social norms

why has economic growth been more pro poor in some states of india than others abstract we use 20 household surveys for india s 15 major states spanning 1960 1994 to study how the sectoral composition of economic growth and initial conditions interact to influence how much growth reduced consumption poverty the elasticities of measured poverty to farm yields and development spending did not differ significantly across states but the elasticities of poverty to urban and rural non farm output varied appreciably and the differences were quantitatively important to the overall rate of poverty reduction states with higher elasticities did not experience higher rates of non farm growth the non farm growth process was more pro poor in states with initially higher literacy higher farm productivity higher rural living standards relative to urban areas lower landlessness and lower infant mortality

the assessment the twentieth century achievements failures lessons the past century saw unprecedented rises in life expectancy and living standards it also witnessed major structural changes the rise of big government and two globalizations yet the century s economic history was marred by policy and market failures resulting in a massive world wide depression frequent financial crises particularly in the developing world and several inflation spurts central planning set back development for one third of the world s population transition to the market economy was at best slow in some instances disastrous income distribution within countries changed little while productivity convergence between rich and poor economies was virtually absent policy making learnt some lessons from the 1930s experience particularly in the areas of macroeconomic management international cooperation and free trade dogmatic recipes however were often resorted to at home aided and abetted by the pretensions of the economics profession

the politics of government decision making a theory of regulatory capture the paper develops an agency theoretic approach to interest group politics and shows the following 1 the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation 2 the threat of producer protection leads to low powered incentive schemes for regulated firms 3 consumer politics may induce uniform pricing by a multiproduct firm 4 an interest group has more power when its interest lies in inefficient rather than efficient regulation where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal congress

the trend behavior of alternative income inequality measures in the united states from 1947 1990 and the structural break this article tests the hypothesis that the time series process of income inequality has experienced a structural break the timing of the structural break is treated as an unknown parameter to be estimated from the data because it is not possible to associate a single episodic policy event with the break year and to avoid bias in favor of a unit root hypothesis if the break was near the selected year for several measures of income inequality a segmented trend model is more appropriate to account for the fundamentals affecting the behavior of income inequality as opposed to a stochastic trend model

does liberte egalite a survey of the empirical links between democracy and inequality with some evidence on the transition economies the effect of the distribution of political rights on income inequality has been studied both theoretically and empirically the authors review the existing literature and in particular the available empirical evidence the literature suggests that formal exclusion from the political process through restrictions on the voting franchise appears to have caused a high degree of economic inequality and democratization in the form of franchise expansion has typically led to an expansion in redistribution at least in the small sample of episodes studied in a less pronounced way albeit more emphatically compared with the ambiguous results of earlier research recent evidence indicates an inverse relationship between other measures of democracy based on civil liberties and political rights and inequality the transition experience of eastern european countries however seems to some extent go against these conclusions this opens possible new vistas for research namely the need to incorporate the length of democratic experience and the role played by ideology and social values

does microfinance reduce income inequality this study addresses the question whether participation of the poor in microfinance contributes to reducing a country s level of income inequality using data from 70 developing countries we show that higher levels of microfinance participation are indeed associated with a reduction of the income gap between rich and poor people we also show however that the effects of microfinance on reducing income inequality are relatively small the results of this study add to the discussion on the impact of microfinance on poverty by showing that although access to microfinance does seem to improve the relative income position of the poor this improvement is modest which is probably because the use of microfinance is generally small as compared to the size of the economy of the countries in our sample microfinance should therefore not be seen as a panacea for bringing down income inequality in a significant way

a new database on human capital stock in developing and industrial countries sources methodology and results abstract the paper describes the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years 1960 1987 the series are built from enrollment data using the perpetual inventory method adjusted for mortality estimates are corrected for grade repetition among school goers and country specific drop out rates for primary and secondary students enrollment data series used start as far back as 1930 for most countries and even earlier for others this reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory

why have some indian states done better than others at reducing rural poverty the unevenness of the rise in rural living standards in the various states of india since the 1950s allowed the authors to study the causes of poverty they modeled the evolution of average consumption and various poverty measures using pooled state level data for 1957 91 they found that poverty was reduced by higher agricultural yields above trend growth in nonfarm output and lower inflation rates but these factors only partly explain relative success and failure in reducing poverty initial conditions also mattered states that started the period with better infrastructure and human resources with more intense irrigation greater literacy and lower infant mortality rates had significantly greater long term rates of consumption growth and poverty reduction by and large the same variables that promoted growth in average consumption also helped reduce poverty the effects on poverty measures were partly redistributive in nature after controlling for inflation the authors found that some of the factors that helped reduce absolute poverty also improved distribution and none of the factors that reduced absolute poverty had adverse impacts on distribution in other words there was no sign of tradeoffs between growth and pro poor distribution

halving global poverty the goal of central importance to this paper is to cut in half the proportion of people living below 1 a day from around 30 percent of the developing world s population in 1990 to 15 percent by 2015 based on population projections in 1990 this would correspond to around one billion people exiting poverty this paper begins by discussing poverty trends on a global scale where the poor are located in the world and how their numbers have been changing over time it then discusses the relationship of economic growth and income distribution to poverty reduction finally it suggests an evidence based agenda for poverty reduction in the developing world full text available at official url

credit rating industry a helicopter tour of stylized facts and recent theories the recent subprime crisis and the ongoing euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens as a consequence we have seen an explosion of the economic literature on the industry the objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry

linkages between pro poor growth social programmes and labour market the recent brazilian experience summary this paper analyzes the relationship between growth patterns poverty and inequality in brazil during its globalization process focusing on the role played by the labor market and social programs methodologically the paper makes two contributions to the literature one is the proposal of a new measure of pro poor growth which links growth rates in mean income and in income inequality the other contribution is a decomposition methodology that explores linkages between three dimensions growth patterns labor market performances and social policies the proposed methodologies are then applied to the brazilian national household survey covering the period 1995 2004

what can new survey data tell us about recent changes in distribution and poverty it has been claimed that in recent times the poor have lost ground both relatively and absolutely even when average levels of living have risen this article tests that claim using household surveys for 67 developing and transitional economies over 1981 94 it finds that changes in inequality and polarization were uncorrelated with changes in average living standards distribution improved as often as it worsened in growing economies and negative growth was often more detrimental to distribution than positive growth overall there was a small decrease in absolute poverty although with diverse experiences across regions and countries almost always poverty fell with growth in average living standards and rose with contraction

certification and minimum quality standards when some consumers are uninformed we compare certification to a minimum quality standard mqs policy in a duopolistic industry where firms incur quality dependent fixed costs and only a fraction of consumers observe the quality of the offered goods compared to the unregulated outcome both profits and social welfare would increase if firms could commit to producing a higher quality an mqs restricts the firms quality choice and leads to less differentiated goods this fuels competition and may therefore deter entry a certification policy which awards firms with a certificate if the quality of their products exceeds some threshold does not restrict the firms quality choice in contrast to an mqs certification may lead to more differentiated goods and higher profits we find that firms are willing to comply with an ambitious certification standard if the share of informed consumers is small in that case certification is more effective from a welfare perspective than a minimum quality standard because it is less detrimental to entry

on publication refereeing and working hard we present a model for academia with heterogeneous author types and endogenous effort to evaluate recent changes in the publication process in economics we analyze the implications of these developments on research output lowering the precision of refereeing signals lowers the effort choices of intermediate ability authors but invites more submissions from less able authors increasing the number of journals stimulates less able authors to submit their papers the editor can improve the journal s quality pool of submitted manuscripts by improving the precision of refereeing but not by lowering acceptance standards the submission strategy of an author is informative of his ability

channels and policy debate in the globalization inequality poverty nexus the process of globalization has led to a much greater integration of the world economy the flows of trade capital labour technology and information across national borders have accelerated since the 1980s and created an environment conducive to faster economic growth and transmission of knowledge it is evident that the forces of globalization provide a strong potential for a major reduction in poverty in the developing world however for a number of reasons brought out in this chapter the positive impact of globalization on poverty alleviation worldwide has not been as substantial as one might have expected in this chapter we explore structural factors and policies within the world economy and national economies that impede the full transmission of the benefits of the various channels of globalization to poverty reduction

who gains from non collusive corruption non collusive corruption i e corruption that imposes an additional burden on business activity is particularly widespread in low income countries we build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption we find that credit market imperfections by generating rents for the incumbent entrepreneurs create strong incentives for corrupt behavior by state officials however non collusive corruption not only redistributes income from non officials towards officials but also within the group of potential entrepreneurs if borrowing is limited bribes prevent poorer but talented individuals from starting a business but this is likely to benefit those who may enter anyway the cost of capital is lower and there is less competition on the goods markets

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

electoral systems and income inequality abstract the goal of this paper is to determine if electoral systems and inequality are linked using high quality data lis database and simple panel methods we show that when the degree of proportionality of a system increases inequality decreases

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

inequality and growth in the united states is there asymmetric response at the state level a previous study that tried to assess the impact of economic growth on income inequality in the u s used state level data and an ardl panel model to conclude that economic growth worsens income in

the personal and the factor distributions of income in a cross section of countries abstract the shares of capital and labour in national income vary substantially both over time and across countries this paper shows that the factor distribution of income is an essential determinant of the personal distribution of income we use cross country and panel data for a group of developed and developing countries to show that a larger labour share is associated with a lower gini coefficient of personal incomes this effect is not only statistically significant but also economically important an increase in the labour share in mexico to that observed in the us would reduce the gini coefficient of the former by between two and five points

honest certification and the threat of capture abstract this paper derives conditions under which reputation enables certifiers to resist capture these conditions alone have strong implications for the industrial organization of certification markets 1 honest certification requires high prices that may even exceed the static monopoly price 2 honest certification exhibits economies of scale and constitutes a natural monopoly 3 price competition tends to a monopolization the results derive from a general principle of reputation models that favors concentration this principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms

external sector and income inequality in interdependent economies using a dynamic panel data approach abstract by using a panel of countries for 1960 1995 we show that the intensity of capital controls the exchange rate the type of exports and the volume of trade appear to affect the long run distribution of income

the simultaneous evolution of growth and inequality research on inequality and growth can be divided into two strands one deriving from kuznets and lewis has tried to identify a mechanistic relationship between growth or level of income and inequality the other has tried to find causal explanations of growth and inequality treating each independently in this paper we draw from both strands to test whether growth and inequality are the joint outcomes of other variables and processes we find that simultaneous examination of growth and inequality yields significantly different results and has different consequences for policy from previous independent studies the empirical literature on growth and inequality can be divided into two broad strands one following the pioneering work of kuznets and lewis is motivated by the pessimistic conjecture that the process of growth and development somehow requires increasing inequality at least in the early stages this has led to many efforts to identify a mechanical relationship between the level of development and inequality anand and kanbur 1993 or to determine whether faster growth requires higher or lower inequality the second strand has sought to identify the causal factors influencing the evolution of growth and inequality independently this research has looked either at growth for example barro and sala i martin 1995 or at inequality li et al 1997 but has not tried to identify those factors that might simultaneously influence both growth and inequality 2 thus the literature that looks simultaneously at growth and inequality descending most notably from kuznets 1955 relates them in a mechanistic manner that ignores or minimises the role of other causal factors including policy while the literature that incorporates other causal factors including policies looks independently at growth and inequality neither approach is particularly convincing from a theoretical standpoint the evolution of growth and inequality must surely be the outcome of similar processes in addition neither approach is particularly useful for the policy maker who needs to balance the impact of policies on both growth and distribution in this paper we investigate whether growth and inequality are simultaneously determined and if so whether or not they are subject to

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

dynamics of income distribution in this paper we have obtained closed form solutions in cass koopmans growth models with heterogeneous agents the relationship between the form of the production function and the dynamics of income distribution is made explicit we then use this relationship to determine what production structure is simultaneously consistent with facts on growth and income inequality our empirical findings give support to models with decreasing returns in the reproducible factor jel classification d3 o1 o4 dans ce memoire les auteurs obtiennent des solutions pour des modeles de croissance a la cass koopmans dans le cas ou les agents sont heterogenes on explicite la relation entre la forme de la fonction de production et la dynamique de la repartition des revenus on utilise alors cette relation pour determiner quelle structure de production est arrimee aux faits connus a la fois quant a la croissance economique et a la repartition des revenus les resultats empiriques supportent les modeles ou les rendements sur les acteurs de production reproductibles sont decroissants

inequality and institutions abstract this paper presents theory and evidence on the relationship between inequality and institutional quality we exhibit a model in which the two may dynamically reinforce each other and set to test this relationship with a broad array of institutional measures the double causality between institutional strength and a more equal distribution of income is empirically established using dynamic panel and linear feedback analysis

intertemporal and interprovincial variations in income inequality spain 1973 1991 goerlich f j and mas m 2002 intertemporal and interprovincial variations in income inequality spain 1973 1991 reg studies 36 1005 1015 the paper presents the main findings on personal income distribution for the spanish provinces over the period 1973 91 the information comes from the three structural household budget surveys and has been elaborated by the authors on a homogeneous base available at http www ivie es it starts by reviewing the information provided by some dispersion statistics including kernel density functions applied to the provincial gini indices and lorenz percentiles it goes on to test making use of an anova model two propositions related with intertemporal and interprovincial variations in inequality the penultimate section before the conclusions deals with the estimation of convergence equations in inequality

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps