Inequality and strongCollectivestrong Action - Department of strongEconomicsstrong.pdfVIP

Inequality and Collective Action∗ Pranab Bardhan Department of Economics, University of California, Berkeley bardhan@econ.berkeley.edu Maitreesh Ghatak Department of Economics, London School of Economics Alexander Karaivanov Department of Economics, University of Chicago a-karaivanov@uchicago.edu October, 2002 Abstract In this paper we analyze the effect of inequality in the distribution of endowments of private inputs (like land, capital) on production efficiency through its effect on the voluntary provision of collective inputs (like irrigation, public research) that are complementary in production with those private inputs. The collective inputs can be both of the kind in which one producer benefits from their use by others (as in the case of research and extension) and the kind in which one’s use detracts from potential use by others (as in the case of irrigation water from a pond). Markets in the private inputs are assumed to be imperfect, inhibiting their efficient allocation across individuals. In this context we work out how an increase in inequality in the distribution of private inputs affects the voluntary provision or use of the collective inputs and the total production surplus in this simple economy. In general we show that while production surplus increases with greater equality within the group of contributors (users) and the group of non-contributors