The Distribution of Income in the Presence of Appropriative Activities

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Abstract

We examine the distribution of income when agents allocate their initial endowments between production and appropriation (arms investments, influence or rent-seeking activities). Final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation. Various possible improvements in an agent’s useful productivity reduce the agent’s equilibrium share of income, but increases in initial endowments increase an agent’s share. We contrast our results to those that would obtain in the competitive counterpart to our model and discuss its relevance both for history and for the present. The results extend to a class of models where distribution is determined between two groups of agents, with agents within each group behaving non-cooperatively but without exhibiting the free-rider problem.

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