### Abstract

The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies equilibrium paths. It is shown that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. Convergence is "gradual" in that the steady state is not achieved in finite time. On the other hand, if the initial skill ratio exceeds the largest steady state, convergence to a steady state is immediate.

Original language | English (US) |
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Pages (from-to) | 291-306 |

Number of pages | 16 |

Journal | Economic Theory |

Volume | 29 |

Issue number | 2 |

DOIs | |

State | Published - Oct 2006 |

### Fingerprint

### Keywords

- Income distribution
- Inequality
- Intertemporal equilibrium

### ASJC Scopus subject areas

- Economics and Econometrics

### Cite this

*Economic Theory*,

*29*(2), 291-306. https://doi.org/10.1007/s00199-005-0021-2

**On the dynamics of inequality.** / Ray, Debraj.

Research output: Contribution to journal › Article

*Economic Theory*, vol. 29, no. 2, pp. 291-306. https://doi.org/10.1007/s00199-005-0021-2

}

TY - JOUR

T1 - On the dynamics of inequality

AU - Ray, Debraj

PY - 2006/10

Y1 - 2006/10

N2 - The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies equilibrium paths. It is shown that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. Convergence is "gradual" in that the steady state is not achieved in finite time. On the other hand, if the initial skill ratio exceeds the largest steady state, convergence to a steady state is immediate.

AB - The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies equilibrium paths. It is shown that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. Convergence is "gradual" in that the steady state is not achieved in finite time. On the other hand, if the initial skill ratio exceeds the largest steady state, convergence to a steady state is immediate.

KW - Income distribution

KW - Inequality

KW - Intertemporal equilibrium

UR - http://www.scopus.com/inward/record.url?scp=33747838912&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=33747838912&partnerID=8YFLogxK

U2 - 10.1007/s00199-005-0021-2

DO - 10.1007/s00199-005-0021-2

M3 - Article

VL - 29

SP - 291

EP - 306

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 2

ER -