The effect of better information on income inequality

Eckwert B, Zilcha I (2007)
ECONOMIC THEORY 32(2): 287-307.

Journal Article | Published | English

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We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is modelled by a distribution of innate ability across agents. This distribution is common knowledge but, at young age, no agent knows his/her ability. The production of human capital depends on each individual's investment in education. This investment decision is taken only after observing a signal which is correlated to his/her true ability, and which is used for updating beliefs. Thus, a better information system affects the distribution of human capital in each generation. Assuming separable and identical preferences for all individuals, we derive the following results in equilibrium: (a) If the relative measure of risk aversion is less (more) than 1 then more information raises (reduces) income inequality. (b) When a risk sharing market is available better information results in higher inequality regardless of the measure risk aversion.
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Eckwert B, Zilcha I. The effect of better information on income inequality. ECONOMIC THEORY. 2007;32(2):287-307.
Eckwert, B., & Zilcha, I. (2007). The effect of better information on income inequality. ECONOMIC THEORY, 32(2), 287-307.
Eckwert, B., and Zilcha, I. (2007). The effect of better information on income inequality. ECONOMIC THEORY 32, 287-307.
Eckwert, B., & Zilcha, I., 2007. The effect of better information on income inequality. ECONOMIC THEORY, 32(2), p 287-307.
B. Eckwert and I. Zilcha, “The effect of better information on income inequality”, ECONOMIC THEORY, vol. 32, 2007, pp. 287-307.
Eckwert, B., Zilcha, I.: The effect of better information on income inequality. ECONOMIC THEORY. 32, 287-307 (2007).
Eckwert, Bernhard, and Zilcha, Itzhak. “The effect of better information on income inequality”. ECONOMIC THEORY 32.2 (2007): 287-307.
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