Abstract
Purpose – The purpose of this paper is to provide a theory that can explain the persistence of inequality in an economy where household agents are identical in terms of their preferences and have access to the same production technology.Design/methodology/approach – An overlapping generations model is developed where agents are imperfectly altruistic and face uncertain lifetimes. The rate of time preference of an agent depends on her probability of survival which is increasing in her level of consumption. An agent's initial endowment of human capital jointly determines her patience and willingness to accumulate human capital and other productive assets.Findings – It was found that inequality may persist in the economy as a result of endogenous rate of time preference. Agents with low initial endowment of human capital are impatient and choose not to invest in human capital. Agents with initial endowment of human capital above a certain threshold choose to invest in human capital as they expect to survive ...
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