Preventing Widening Inequality: Economic Rents and Sustainable Heterogeneity

Harashima, Taiji (2020): Preventing Widening Inequality: Economic Rents and Sustainable Heterogeneity.

Abstract

There has long been a deep-rooted view that economic rents are foremost among the origins of high levels of economic inequality. In this paper, economic rents generated by ranking preference are examined as an important source of widening inequality based on the concept of sustainable heterogeneity. Ranking preference generates widespread and large monopoly rents across an economy because they can be obtained through firms’ product differentiations, but this topic has not been studied as a source of economic inequality. This paper shows that these monopoly rents can greatly accelerate economic inequality because access to these rents is intrinsically heterogeneous among households and are unevenly distributed and persistent. Nevertheless, if a government appropriately intervenes, the acceleration of inequality can be prevented.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inequality; Monopoly rents; Ranking preference; Rents; Sustainable heterogeneity
• Subjects: D - Microeconomics > D3 - Distribution > D30 - General; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D42 - Monopoly; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

References

Atkinson, Anthony B., Thomas Piketty and Emmanuel Saez (2011) “Top Incomes in the Long Run of History,” Journal of Economic Literature, Vol. 49, No. 1, pp. 3-71.

Autor, David H., Lawrence F. Katz and Alan B. Krueger (1998) “Computing Inequality: Have Computers Changed the Labor Market?” The Quarterly Journal of Economics, Vol. 113, No. 4, pp. 1169-1213

Autor, David H., Frank Levy and Richard J. Murnane (2003) “The Skill Content of Recent Technological Change: An Empirical Exploration,” The Quarterly Journal of Economics, Vol. 118, No. 4, pp. 1279-1333.

Becker, Robert A. (1980) “On the Long-run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households,” The Quarterly Journal of Economics, Vol. 95, No. 2, pp. 375–382.

Boix, Carles (2010) “Origins and Persistence of Economic Inequality,” Annual Review of Political Science, Vol. 13, pp. 489-516.

Card, David and John E. DiNardo (2002) “Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics, Vol. 20, No. 4, pp. 733- 783　

Goldberg, Pinelopi Koujianou and Nina Pavcnik (2007) “Distributional Effects of Globalization in Developing Countries,” Journal of Economic Literature, Vol. 45, No. 1, pp. 39-82.

Harashima, Taiji (2010) “Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population,” MPRA (The Munich Personal RePEc Archive) Paper No. 24233.

Harashima, Taiji (2012) “Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions,” MPRA (The Munich Personal RePEc Archive) Paper No. 40938.

Harashima, Taiji (2016) “Ranking Value and Preference: A Model of Superstardom,” MPRA (The Munich Personal RePEc Archive) Paper No. 74626.

Harashima, Taiji (2017a) “Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 51, No.1, pp. 31-80. （原嶋　耐治「持続可能な非均質性―均質ではない構成員からなる経済における不平等、経済成長及び社会的厚生―」 『金沢星稜大学論集』 第51巻第1号（通巻130号） 31～80頁）

Harashima, Taiji (2017b) “The Mechanism behind Product Differentiation: An Economic Model” Journal of Advanced Research in Management, Vol. 8, No. 2. pp. 95-111.

Harashima, Taiji (2018a) “Superstars in Team Sports: An Economic Model,” MPRA (The Munich Personal RePEc Archive) Paper No. 86360.

Harashima, Taiji (2018b) “Ranking Value and Preference: A Model of Superstardom,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 52, No.1, pp. 27 - 40. （原嶋　耐治「順位価値と順位選好―スーパースターの経済モデル―」 『金沢星稜大学論集』 第52巻第1号（通巻132号） 27～40頁）

Harashima, Taiji (2018c) “Why Is Executive Compensation So High? A Model of Executive Compensation” (2018) Journal of Advanced Research in Management, Vol. 9, No. 2. pp. 59-68.

Helpman, Elhanan (2016) “Globalization and Wage Inequality,” NBER Working Paper, No. 22944.

Katz, Lawrence F. and Kevin M. Murphy (1992) “Changes in Relative Wages, 1963-1987: Supply and Demand Factors,” The Quarterly Journal of Economics, Vol. 107, No. 1, pp. 35-78.

Kuznets, Simon (1955) “Economic Growth and Income Inequality,” The American Economic Review, Vol. 45, No. 1, pp. 1-28

Leamer, Edward E. (1998) “In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages,” in Imports, Exports, and the American Worker, Susan M. Collins (ed), Brookings Institution Press, Washington, D.C.

Milanovic, Branko (2016) Global Inequality: A New Approach for the Age of Globalization, The Belknap Press of Harvard University Press, Cambridge, MA.

Parker, Nicholas (2014) “Divergence: Wealth and Income Inequality in the United States,” EconSouth, Federal Reserve Bank of Atlanta, Vol. 16, No. 3.

Piketty, Thomas (2003), “Income Inequality in France, 1901–1998,” Journal of Political Economy, Vol. 111, No. 5, pp. 1004-1042.

Piketty, Thomas (2013) Le Capital au XXIe siècle translated by Arthur Goldhammer in English in 2014 with the title Capital in the twenty-First Century Capital in the Twenty-First Century, Belknap Press of Harvard University Press, Cambridge, MA.

Piketty, Thomas and Emmanuel Saez (2003) “Income Inequality in the United States, 1913–1998,” The Quarterly Journal of Economics, Vol. 118, No. 1, pp. 1-41.

Porter, Michael E. (1980) Competitive Strategy, Free Press, New York.

Porter, Michael E. (1985) Competitive Advantage, Free Press, New York.

Saez, Emmanuel and Gabriel Zucman (2016) “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” The Quarterly Journal of Economics, Vol. 131, No. 2, pp. 519-578.

Stiglitz, Joseph E. (2015a) “New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual,” NBER Working paper, No. 21189.

Stiglitz, Joseph E. (2015b) “New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part II: Equilibrium Wealth Distributions,” NBER Working paper, No. 21190.

Stiglitz, Joseph E. (2015c) “Inequality and Economic Growth,” The Political Quarterly, Vol. 86, No. S1, pp. 134-155. DOI: 10.1111/1467-923X.12237.

Stiglitz, Joseph E. (2015d) “The Origins of Inequality, and Policies to Contain It,” National Tax Journal, 2015, Vol. 68, No. 2, pp. 425–448. DOI: dx.doi.org/10.17310/ntj.2015.2.09

Stolper, Wolfgang F. and Paul A. Samuelson (1941) “Protection and Real Wages,” The Review of Economic Studies, Vol. 9, No. 1, pp. 58-73.