SFB 303 Discussion Paper No. A - 545
Author: Grüner, Hans-Peter, and Rüdiger Schils
Title: Capital Redistribution and the Market Allocation of Firm-Ownership
Abstract: This paper studies the relationship between political redistribution
and the allocation of firm-ownership when production requires an
unobservable input. The economy's wealth distribution affects the
equilibrium interest rate and the allocation of entrepreneurial rents
because wealth serves as a bonding device and determines agents ability and
willingness to borrow. In a two-class society in which the poor make up the
majority of voters full redistribution always takes place. We derive
conditions for a three-class society such that decisive middle class voters
oppose redistribution. The aggregate capital endowment determines whether
the middle class can own less or must own more than average wealth in order
to oppose redistribution. Moreover, the size of the capital stock determines
whether middle class voters support non-redistribution or whether they use
redistribution as a mean to get access to entrepreneurial rents.
Keywords: Capital Redistribution, Firm-Ownership, Moral Hazard
JEL-Classification-Number: D24, D30, D72, P12, P16
Creation-Date: December 1996
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