The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper studies the relationship between wealth inequality and occupational choice between rent-seeking and production. With imperfect credit markets and a fixed cost to rent-seeking, only wealthy agents choose to engage in rent-seeking as it enables them to protect their wealth from expropriation. Hence, initial wealth determines occupational choice and aggregate economic activity. The model also generates an unequal wealth distribution endogenously through fair gambles undertaken voluntarily, despite agents being identical ex ante. If agents have an altruistic bequest motive, income and occupational differences can be perpetuated from generation to generation.