Occupational choice, incentives and wealth distribution

A. Chakraborty, A. CITANNA

Journal of Economic Theory

juin 2005, vol. 122, n°2, pp.206-224

Départements : Economie et Sciences de la décision

Mots clés : Matching, Moral hazard wealth distribution

We consider a model of occupational choice in large economies where individuals differ in their wealth endowment. Individuals can remain self-employed or engage in productive matches with another individual, i.e., form firms. Matches are subject to a moral hazard problem with limited liability. The division of the gains from such matches is determined by competitive forces. When the incentive problem is asymmetric, matches are typically wealth-heterogeneous, with richer individuals choosing the occupation for which incentives are more important. The utilities attained within a match depend on the wealth distribution and changes in the latter give rise to 'trickle down' effects