Wednesday, July 13, 2005

"[D]ifferent social contracts are not Pareto—rankable: rich enough agents always prefer a more laissez-faire society, while those who are poor enough always want more of a welfare state."
Source: Roland Bénabou, "Inequality, Technology, and the Social Contract", October 2004,, as online 13 July 2005

He then examines how these two social models compare in terms of aggregate growth. Cutting out the Greek symbols, he writes:

"Compared to a more laissez-faire alternative, a more redistributive social contract is associated with lower inequality, and
1) has higher growth when tax distortions are small relative to those induced by credit constraints on the accumulation of human capital;
2) has lower growth when tax distortions are high and the credit—constraint effect is weak"