In this paper we present a simple model to show how distributional concerns can engender social conflict. We have a two period model, where the cost of conflict is endogenous in the sense that parties involved have full control over how much conflict they can create. Unlike the standard results our model shows that it is not current inequality that is important for conflict,rather it is the anticipated future inequality that plays a crucial role. The anticipated inequality, however, has to be significant to result in conflict. Also, as a result of the conflict, total output and growth in the economy is lowered. Finally, in line with empirical evidence, our model also shows that richer societies will have less conflict.
|Name||Dundee Discussion Papers in Economics|
|Publisher||University of Dundee|
- Wealth inequality
- Nash bargaining