Market Integration, Risk-Taking, and Income Inequality

Lin William Cong (叢林) Ron Kaniel, Yizhou Xiao - Dec 30, 2023

Working Paper No.  00136-00

A pandemic or nationalism can dial back global integration as much as advancements in IT and transportation spur it. We study a parsimonious general equilibrium model of occupational choice, risk-taking, and income inequality against backdrop of market (dis)integration and certain services in inelastic supplies. In a decentralized, segmented environment, entrepreneurship and risk-taking are inefficiently low; in an integrated market, they can be socially excessive and entrepreneurship is non-monotone in the service supply. As transportation and information technologies improve, occupational risk-taking and total production increase, with ambiguous welfare consequences. In a dynamic setting with inter-generational inheritance, wealth inequality is exacerbated by income inequality, but faces a long-term reversal when scarce service supply is affected by total production. 

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