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Inequality, incomplete contracts, and the size distribution of business firms

Inequality, incomplete contracts, and the size distribution of business firms
Inequality, incomplete contracts, and the size distribution of business firms
This article analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium, wealth inequality induces a heterogeneous distribution of firm sizes, allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of firm-size distributions in developing countries. The model can encompass a nonmonotonic relationship between aggregate output and inequality. It turns out that an inflow of capital may indeed decrease output in absolute terms.
0020-6598
335-364
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4

Gall, Thomas (2010) Inequality, incomplete contracts, and the size distribution of business firms. International Economic Review, 51 (2), 335-364. (doi:10.1111/j.1468-2354.2010.00582.x).

Record type: Article

Abstract

This article analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium, wealth inequality induces a heterogeneous distribution of firm sizes, allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of firm-size distributions in developing countries. The model can encompass a nonmonotonic relationship between aggregate output and inequality. It turns out that an inflow of capital may indeed decrease output in absolute terms.

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More information

Published date: May 2010
Organisations: Economics

Identifiers

Local EPrints ID: 348653
URI: http://eprints.soton.ac.uk/id/eprint/348653
ISSN: 0020-6598
PURE UUID: d0aa5015-8b8f-41ef-94c3-2d74fc846501
ORCID for Thomas Gall: ORCID iD orcid.org/0000-0003-2257-1405

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Date deposited: 18 Feb 2013 11:04
Last modified: 15 Mar 2024 03:46

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