Publication: Investment Efficiency and the Distribution of Wealth
Date
2009
ISSN
Published
2009
Author(s)
Banerjee, Abhijit V.
Abstract
The point of departure of this paper is
that in the absence of effectively functioning asset markets
the distribution of wealth matters for efficiency.
Inefficient asset markets depress total factor productivity
(TFP) in two ways: first, by not allowing efficient firms to
grow to the size that they should achieve (this could
include many great firms that are never started); and
second, by allowing inefficient firms to survive by
depressing the demand for factors (good firms are too small)
and hence factor prices. Both of these effects are dampened
when the wealth of the economy is in the hands of the most
productive people, again, for two reasons: first, because
they do not rely as much on asset markets to get outside
resources into the firm; and second, because wealth allows
them to self insure and therefore they are more willing to
take the right amount of risk. None of this, however, tells
us that efficiency enhancing redistributions must always be
targeted to the poorest. There is some reason to believe
that a lot of the inefficiency lies in the fact that many
medium size firms are too small.
Link to Data Set
Citation
“Banerjee, Abhijit V.. 2009. Investment Efficiency and the Distribution of Wealth. Commission on Growth and Development Working Paper;No. 53. © World Bank, Washington, DC. http://hdl.handle.net/10986/27940 License: CC BY 3.0 IGO.”