Lotteries , Inequality , and Market Imperfection : Galor and Zeira Go Gambling ∗
نویسنده
چکیده
Following conventional wisdom, capital market imperfections are considered to be an obstacle to long-run growth and prosperity. In this paper a simple extension to the work of Galor and Zeira (1993) provides a caveat to this rule of thumb. Admitting lotteries the dynamics of the model changes fundamentally: the poverty trap found in the original work vanishes for a wide class of parameters. It turns out that reducing credit market imperfections does not improve long run growth perspectives in general. In some cases this creates a poverty trap and persistent income inequality in the economy.
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