Funk, P; Vogel, T; (2003) Persistent inequality when learning requires a minimal standard of living. (Discussion Papers in Economics 03-09 ). Department of Economics, University College London, UCL (University College London), Department of Economics, University College: London, UK.

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Abstract

This paper studies the persistence of wealth and utility inequality in a dynamicmodel of skill acquisition with complete credit markets and rational, perfectly altruistic,dynastic utility-maximization, when efficient learning requires a minimal standardof living. The main result is that, if the minimal standard of living is not triviallysmall, at any stationary equilibrium without intergenerational mobility there are?poor?, unskilled and ?rich?, skilled dynasties. Members of rich dynasties inherit morefrom their parents than members of poor dynasties. The former in general acquireskill, while the latter remain unskilled, and - most importantly - members of rich familiesalso enjoy strictly higher utility than members of poor dynasties. This paper studies the persistence of wealth and utility inequality in a dynamicmodel of skill acquisition with complete credit markets and rational, perfectly altruistic,dynastic utility-maximization, when efficient learning requires a minimal standardof living. The main result is that, if the minimal standard of living is not triviallysmall, at any stationary equilibrium without intergenerational mobility there are?poor?, unskilled and ?rich?, skilled dynasties. Members of rich dynasties inherit morefrom their parents than members of poor dynasties. The former in general acquireskill, while the latter remain unskilled, and - most importantly - members of rich familiesalso enjoy strictly higher utility than members of poor dynasties.

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