TY  - JOUR
AU  - Rajan,Raghuram G.
AU  - Zingales,Luigi
TI  - The Tyranny of Inequality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5396
PY  - 1995
Y2  - December 1995
UR  - http://www.nber.org/papers/w5396
L1  - http://www.nber.org/papers/w5396.pdf
N1  - Author contact info:
Raghuram Rajan
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-4437
Fax: 773/702-0458
E-Mail: raghuram.rajan@ChicagoBooth.edu

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - Life is replete with instances where two closely related parties forego mutually advantageous opportunities: peace treaties are not signed, inefficient regulations are not altered, and possibilities for investment are frittered away.  Since the parties are in close contact, asymmetric information cannot be an explanation for the failure to agree.  The explanation this paper offers is based on the assumption that when two parties interact repeatedly, not all aspects of the relationship are contractible.  Each party's property rights in the relationship then become endogenous.  Efficiency and distribution are not separable in such a world, leading the parties to forego perfectly contractible opportunities.  The inability to cooperate is especially severe when one of the parties has relatively poor production opportunities which may explain why the inefficient have undue sway.  We explore a number of applications.
ER  -