Inequality, lobbying, and resource allocation

Joan Esteban, Debraj Ray

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government - even if it honestly seeks to maximize economic efficiency - may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more "corrupt.".

    Original languageEnglish (US)
    Pages (from-to)257-279
    Number of pages23
    JournalAmerican Economic Review
    Volume96
    Issue number1
    DOIs
    StatePublished - Mar 2006

    ASJC Scopus subject areas

    • Economics and Econometrics

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