Aspirations and Inequality

Garance Genicot, Debraj Ray

    Research output: Contribution to journalArticle

    Abstract

    This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income, and the distribution of income evolve jointly. When capital stocks lie in some compact set, steady state distributions must exhibit inequality and are typically clustered around local poles. When sustained growth is possible, initial histories matter. Either there is convergence to an equal distribution (with growth) or there is perennial relative divergence across clusters, with within-cluster convergence. A central feature that drives these results is that aspirations that are moderately above an individual's current standard of living tend to encourage investment, while still higher aspirations may lead to frustration.

    Original languageEnglish (US)
    Pages (from-to)489-519
    Number of pages31
    JournalEconometrica
    Volume85
    Issue number2
    DOIs
    StatePublished - Mar 1 2017

      Fingerprint

    Keywords

    • Aspirations
    • income distribution
    • inequality
    • reference points

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Genicot, G., & Ray, D. (2017). Aspirations and Inequality. Econometrica, 85(2), 489-519. https://doi.org/10.3982/ECTA13865