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Occupational choice, incentives and wealth distribution

Abstract : 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.
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Submitted on : Thursday, March 11, 2010 - 3:42:30 PM
Last modification on : Thursday, January 11, 2018 - 6:19:31 AM




Alessandro Citanna, Archishman Chakraborty. Occupational choice, incentives and wealth distribution. Journal of Economic Theory, Elsevier, 2005, Vol.122,n°2, pp.206-224. ⟨10.1016/j.jet.2003.11.004⟩. ⟨hal-00463229⟩



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