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Wealth inequality and dynamic stability

Ghiglino, C (2005) 'Wealth inequality and dynamic stability.' Journal of Economic Theory, 124 (1). 106 - 115. ISSN 0022-0531

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We explore the link between wealth inequality and stability in a two-sector neoclassical growth model with heterogeneous agents. We show that when the inverse of absolute risk aversion (or risk tolerance) is a strictly convex function, wealth inequality is a factor that favors instability. In the opposite case, inequality favors stability. Our characterization also shows that whenever absolute risk tolerance is linear, as when preferences exhibit hyperbolic absolute risk aversion (HARA), wealth heterogeneity is neutral. © 2004 Elsevier Inc. All rights reserved.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 16 Jul 2012 20:19
Last Modified: 23 Jan 2019 00:15

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