Degan, Arianna and Thibault, Emmanuel (2012) Dynastic Accumulation of Wealth. TSE Working Paper, n. 12-325

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Abstract

Why do some dynasties maintain the fortune of their founders while others
completely squander it in few generations? To address this question, we use a simple deterministic
microfounded model based on two main elements: the “hunger for accumulation”
and the “willingness to exert effort”. Contrary to models with capital market imperfections,
our setting points to the crucial role of our two key ingredients, rather than of initial wealth
or transitory shocks to wealth or inflation, on the long-run process of wealth accumulation
within a family lineage. In addition, in a context with heterogeneous dynasties, we show
that our model can provide a novel interpretation for some macroeconomics issues such as
the demise of the rich bourgeoisie, class structure, social mobility, and wealthy inequalities.
For example it predicts that those who take the effort to innovate and take advantage of
new profitable opportunities are agents who are neither too poor nor too rich. Obviously,
this simple framework is a great starting point for further empirical analysis.