Investment Efficiency and the Distribution of Wealth

The point of departure of this paper is that in the absence of effectively functioning asset markets the distribution of wealth matters for efficiency. Inefficient asset markets depress total factor productivity (TFP) in two ways: first, by not all...

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Bibliographic Details
Main Author: Banerjee, Abhijit V.
Format: Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2017
Subjects:
BID
GDP
SLR
TAX
Online Access:http://documents.worldbank.org/curated/en/652441468161947001/Investment-efficiency-and-the-distribution-of-wealth
http://hdl.handle.net/10986/27940
id okr-10986-27940
recordtype oai_dc
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic ACCESS TO CREDIT
AGENCY PROBLEM
AGRICULTURE
ALLOCATION
AMOUNT OF RISK
ASSET MARKETS
ASSETS
AVERAGE PRODUCTIVITY
BANKING SYSTEM
BANKS
BID
BOND
BORROWER
BORROWING
BUSINESS OWNERS
CAPACITY UTILIZATION
CAPITAL MARKET
CAPITAL MARKETS
CAPITAL STOCK
COLLATERAL
COMPLEMENTARY INPUTS
CONSUMPTION SMOOTHING
CONTRACT ENFORCEMENT
COST OF CAPITAL
CREDIT CONSTRAINT
CREDIT CONSTRAINTS
CREDIT LIMIT
CREDIT MARKET
CREDIT MARKETS
DEFAULT COSTS
DEFAULT RATE
DEFAULT RATES
DEPOSIT
DEPOSITORS
DEVELOPING COUNTRIES
DEVELOPING COUNTRY
DEVELOPMENT BANK
DEVELOPMENT ECONOMICS
DIMINISHING RETURNS
DIMINISHING RETURNS TO SCALE
DISTRIBUTION OF WEALTH
DIVERSIFICATION
DUAL ECONOMY
DURABLE
EARNINGS
ECONOMIC DEVELOPMENT
ECONOMIC GROWTH
ECONOMIC RESEARCH
ECONOMIC THEORY
ECONOMICS STUDIES
EDUCATIONAL BENEFITS
EMPOWERMENT
ENTREPRENEUR
ENTREPRENEURS
EXPECTED RETURNS
EXPENDITURE
EXPENDITURES
EXPLICIT CREDIT
EXPROPRIATION
EXTERNALITIES
FACTORS OF PRODUCTION
FAMILIES
FARMER
FARMERS
FINANCIAL ASSET
FINANCIAL ASSETS
FINANCIAL INTERMEDIARIES
FINANCIAL MARKETS
FINANCIAL SYSTEMS
FISCAL POLICIES
FIXED COST
FIXED COSTS
FORM OF CREDIT
GDP
GOVERNMENT INTERVENTION
GREEN REVOLUTION
GROUPS OF PEOPLE
GROWTH RATE
GROWTH THEORY
HIGH INTEREST RATES
HOLDING
HOUSEHOLD WEALTH
HOUSEHOLDS
HUMAN CAPITAL
INCENTIVE COSTS
INCOME
INCOME DISTRIBUTION
INCOME INEQUALITY
INCREASING RETURNS
INEFFICIENCY
INEQUALITY
INFORMAL CREDIT
INFORMAL FINANCE
INFORMAL INSURANCE
INFORMAL LENDERS
INFORMATIONAL ASYMMETRIES
INSURANCE MARKET
INSURANCE MARKETS
INTEREST COSTS
INTEREST RATE
INTEREST RATES
INTERNATIONAL BANK
INTERNATIONAL DEVELOPMENT
INVENTORIES
INVESTING
INVESTMENT DECISION
INVESTMENT DECISIONS
INVESTMENT NEEDS
INVESTMENT OPPORTUNITIES
INVESTMENT OPPORTUNITY
INVESTMENT RETURNS
LABOR MARKET
LACK OF ACCESS
LAND MARKET
LAND OWNERSHIP
LAND REFORM
LAND REFORMS
LAND RIGHTS
LAND TITLING
LANDHOLDERS
LEGAL OBLIGATION
LEGAL TITLE
LENDER
LENDERS
LIQUID WEALTH
LIVING STANDARDS
LOAN
LOAN SIZE
LOCAL FINANCE
LONG TERM INVESTMENT
MACROECONOMIC POLICY
MACROECONOMICS
MARGINAL PRODUCT
MARGINAL PRODUCTS
MARKET CONSTRAINTS
MARKET ECONOMIES
MARKET RETURN
MERITOCRACY
MICROCREDIT
MICROENTERPRISES
MIDDLE INCOME COUNTRIES
MONEYLENDERS
MORAL HAZARD
MORTGAGE
NATURAL RESOURCES
NET WORTH
NEW BUSINESS
NUTRITION
OPPORTUNITY COST
OUTPUT PER CAPITA
PAWN
PAWN SHOPS
POLITICAL ECONOMY
POTENTIAL INVESTORS
PRIME LENDING RATE
PRIVATE INVESTMENT
PRIVATE RETURNS
PRODUCTION EFFICIENCY
PRODUCTION FUNCTION
PRODUCTIVE ASSETS
PRODUCTIVE INVESTMENT
PROFITABILITY
PUBLIC FINANCE
RATE OF RETURNS
RATES OF RETURN
RATES OF RETURNS
REAL ESTATE
REAL EXCHANGE RATES
REAL INTEREST
REAL INTEREST RATES
RECESSIONS
REPAYMENT
RESIDUAL CLAIMANT
RISK AVERSION
RISK SHARING
RURAL CREDIT
RURAL CREDIT MARKET
SAVINGS
SELF EMPLOYMENT
SHAREHOLDERS
SHORT TERM INVESTMENTS
SLR
SMALL BUSINESS
SMALL BUSINESSES
SMALL ENTERPRISES
SMALL FARM
SOCIAL NORMS
SOCIAL RELATIONS
STATEMENT
STOCK MARKET
STOCKS
TAX
TAX COLLECTION
TELECOMMUNICATIONS
TELECOMMUNICATIONS EQUIPMENT
TOTAL FACTOR PRODUCTIVITY
TRADE CREDIT
TRANSACTION
TRANSACTION COSTS
UNDERVALUATION
VALUE ADDED
VILLAGE
VILLAGES
WORKING CAPITAL
spellingShingle ACCESS TO CREDIT
AGENCY PROBLEM
AGRICULTURE
ALLOCATION
AMOUNT OF RISK
ASSET MARKETS
ASSETS
AVERAGE PRODUCTIVITY
BANKING SYSTEM
BANKS
BID
BOND
BORROWER
BORROWING
BUSINESS OWNERS
CAPACITY UTILIZATION
CAPITAL MARKET
CAPITAL MARKETS
CAPITAL STOCK
COLLATERAL
COMPLEMENTARY INPUTS
CONSUMPTION SMOOTHING
CONTRACT ENFORCEMENT
COST OF CAPITAL
CREDIT CONSTRAINT
CREDIT CONSTRAINTS
CREDIT LIMIT
CREDIT MARKET
CREDIT MARKETS
DEFAULT COSTS
DEFAULT RATE
DEFAULT RATES
DEPOSIT
DEPOSITORS
DEVELOPING COUNTRIES
DEVELOPING COUNTRY
DEVELOPMENT BANK
DEVELOPMENT ECONOMICS
DIMINISHING RETURNS
DIMINISHING RETURNS TO SCALE
DISTRIBUTION OF WEALTH
DIVERSIFICATION
DUAL ECONOMY
DURABLE
EARNINGS
ECONOMIC DEVELOPMENT
ECONOMIC GROWTH
ECONOMIC RESEARCH
ECONOMIC THEORY
ECONOMICS STUDIES
EDUCATIONAL BENEFITS
EMPOWERMENT
ENTREPRENEUR
ENTREPRENEURS
EXPECTED RETURNS
EXPENDITURE
EXPENDITURES
EXPLICIT CREDIT
EXPROPRIATION
EXTERNALITIES
FACTORS OF PRODUCTION
FAMILIES
FARMER
FARMERS
FINANCIAL ASSET
FINANCIAL ASSETS
FINANCIAL INTERMEDIARIES
FINANCIAL MARKETS
FINANCIAL SYSTEMS
FISCAL POLICIES
FIXED COST
FIXED COSTS
FORM OF CREDIT
GDP
GOVERNMENT INTERVENTION
GREEN REVOLUTION
GROUPS OF PEOPLE
GROWTH RATE
GROWTH THEORY
HIGH INTEREST RATES
HOLDING
HOUSEHOLD WEALTH
HOUSEHOLDS
HUMAN CAPITAL
INCENTIVE COSTS
INCOME
INCOME DISTRIBUTION
INCOME INEQUALITY
INCREASING RETURNS
INEFFICIENCY
INEQUALITY
INFORMAL CREDIT
INFORMAL FINANCE
INFORMAL INSURANCE
INFORMAL LENDERS
INFORMATIONAL ASYMMETRIES
INSURANCE MARKET
INSURANCE MARKETS
INTEREST COSTS
INTEREST RATE
INTEREST RATES
INTERNATIONAL BANK
INTERNATIONAL DEVELOPMENT
INVENTORIES
INVESTING
INVESTMENT DECISION
INVESTMENT DECISIONS
INVESTMENT NEEDS
INVESTMENT OPPORTUNITIES
INVESTMENT OPPORTUNITY
INVESTMENT RETURNS
LABOR MARKET
LACK OF ACCESS
LAND MARKET
LAND OWNERSHIP
LAND REFORM
LAND REFORMS
LAND RIGHTS
LAND TITLING
LANDHOLDERS
LEGAL OBLIGATION
LEGAL TITLE
LENDER
LENDERS
LIQUID WEALTH
LIVING STANDARDS
LOAN
LOAN SIZE
LOCAL FINANCE
LONG TERM INVESTMENT
MACROECONOMIC POLICY
MACROECONOMICS
MARGINAL PRODUCT
MARGINAL PRODUCTS
MARKET CONSTRAINTS
MARKET ECONOMIES
MARKET RETURN
MERITOCRACY
MICROCREDIT
MICROENTERPRISES
MIDDLE INCOME COUNTRIES
MONEYLENDERS
MORAL HAZARD
MORTGAGE
NATURAL RESOURCES
NET WORTH
NEW BUSINESS
NUTRITION
OPPORTUNITY COST
OUTPUT PER CAPITA
PAWN
PAWN SHOPS
POLITICAL ECONOMY
POTENTIAL INVESTORS
PRIME LENDING RATE
PRIVATE INVESTMENT
PRIVATE RETURNS
PRODUCTION EFFICIENCY
PRODUCTION FUNCTION
PRODUCTIVE ASSETS
PRODUCTIVE INVESTMENT
PROFITABILITY
PUBLIC FINANCE
RATE OF RETURNS
RATES OF RETURN
RATES OF RETURNS
REAL ESTATE
REAL EXCHANGE RATES
REAL INTEREST
REAL INTEREST RATES
RECESSIONS
REPAYMENT
RESIDUAL CLAIMANT
RISK AVERSION
RISK SHARING
RURAL CREDIT
RURAL CREDIT MARKET
SAVINGS
SELF EMPLOYMENT
SHAREHOLDERS
SHORT TERM INVESTMENTS
SLR
SMALL BUSINESS
SMALL BUSINESSES
SMALL ENTERPRISES
SMALL FARM
SOCIAL NORMS
SOCIAL RELATIONS
STATEMENT
STOCK MARKET
STOCKS
TAX
TAX COLLECTION
TELECOMMUNICATIONS
TELECOMMUNICATIONS EQUIPMENT
TOTAL FACTOR PRODUCTIVITY
TRADE CREDIT
TRANSACTION
TRANSACTION COSTS
UNDERVALUATION
VALUE ADDED
VILLAGE
VILLAGES
WORKING CAPITAL
Banerjee, Abhijit V.
Investment Efficiency and the Distribution of Wealth
relation Commission on Growth and Development Working Paper;No. 53
description The point of departure of this paper is that in the absence of effectively functioning asset markets the distribution of wealth matters for efficiency. Inefficient asset markets depress total factor productivity (TFP) in two ways: first, by not allowing efficient firms to grow to the size that they should achieve (this could include many great firms that are never started); and second, by allowing inefficient firms to survive by depressing the demand for factors (good firms are too small) and hence factor prices. Both of these effects are dampened when the wealth of the economy is in the hands of the most productive people, again, for two reasons: first, because they do not rely as much on asset markets to get outside resources into the firm; and second, because wealth allows them to self insure and therefore they are more willing to take the right amount of risk. None of this, however, tells us that efficiency enhancing redistributions must always be targeted to the poorest. There is some reason to believe that a lot of the inefficiency lies in the fact that many medium size firms are too small.
format Working Paper
author Banerjee, Abhijit V.
author_facet Banerjee, Abhijit V.
author_sort Banerjee, Abhijit V.
title Investment Efficiency and the Distribution of Wealth
title_short Investment Efficiency and the Distribution of Wealth
title_full Investment Efficiency and the Distribution of Wealth
title_fullStr Investment Efficiency and the Distribution of Wealth
title_full_unstemmed Investment Efficiency and the Distribution of Wealth
title_sort investment efficiency and the distribution of wealth
publisher World Bank, Washington, DC
publishDate 2017
url http://documents.worldbank.org/curated/en/652441468161947001/Investment-efficiency-and-the-distribution-of-wealth
http://hdl.handle.net/10986/27940
_version_ 1764465540424794112
spelling okr-10986-279402021-04-23T14:04:45Z Investment Efficiency and the Distribution of Wealth Banerjee, Abhijit V. ACCESS TO CREDIT AGENCY PROBLEM AGRICULTURE ALLOCATION AMOUNT OF RISK ASSET MARKETS ASSETS AVERAGE PRODUCTIVITY BANKING SYSTEM BANKS BID BOND BORROWER BORROWING BUSINESS OWNERS CAPACITY UTILIZATION CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK COLLATERAL COMPLEMENTARY INPUTS CONSUMPTION SMOOTHING CONTRACT ENFORCEMENT COST OF CAPITAL CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT LIMIT CREDIT MARKET CREDIT MARKETS DEFAULT COSTS DEFAULT RATE DEFAULT RATES DEPOSIT DEPOSITORS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT BANK DEVELOPMENT ECONOMICS DIMINISHING RETURNS DIMINISHING RETURNS TO SCALE DISTRIBUTION OF WEALTH DIVERSIFICATION DUAL ECONOMY DURABLE EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC RESEARCH ECONOMIC THEORY ECONOMICS STUDIES EDUCATIONAL BENEFITS EMPOWERMENT ENTREPRENEUR ENTREPRENEURS EXPECTED RETURNS EXPENDITURE EXPENDITURES EXPLICIT CREDIT EXPROPRIATION EXTERNALITIES FACTORS OF PRODUCTION FAMILIES FARMER FARMERS FINANCIAL ASSET FINANCIAL ASSETS FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SYSTEMS FISCAL POLICIES FIXED COST FIXED COSTS FORM OF CREDIT GDP GOVERNMENT INTERVENTION GREEN REVOLUTION GROUPS OF PEOPLE GROWTH RATE GROWTH THEORY HIGH INTEREST RATES HOLDING HOUSEHOLD WEALTH HOUSEHOLDS HUMAN CAPITAL INCENTIVE COSTS INCOME INCOME DISTRIBUTION INCOME INEQUALITY INCREASING RETURNS INEFFICIENCY INEQUALITY INFORMAL CREDIT INFORMAL FINANCE INFORMAL INSURANCE INFORMAL LENDERS INFORMATIONAL ASYMMETRIES INSURANCE MARKET INSURANCE MARKETS INTEREST COSTS INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INVENTORIES INVESTING INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT NEEDS INVESTMENT OPPORTUNITIES INVESTMENT OPPORTUNITY INVESTMENT RETURNS LABOR MARKET LACK OF ACCESS LAND MARKET LAND OWNERSHIP LAND REFORM LAND REFORMS LAND RIGHTS LAND TITLING LANDHOLDERS LEGAL OBLIGATION LEGAL TITLE LENDER LENDERS LIQUID WEALTH LIVING STANDARDS LOAN LOAN SIZE LOCAL FINANCE LONG TERM INVESTMENT MACROECONOMIC POLICY MACROECONOMICS MARGINAL PRODUCT MARGINAL PRODUCTS MARKET CONSTRAINTS MARKET ECONOMIES MARKET RETURN MERITOCRACY MICROCREDIT MICROENTERPRISES MIDDLE INCOME COUNTRIES MONEYLENDERS MORAL HAZARD MORTGAGE NATURAL RESOURCES NET WORTH NEW BUSINESS NUTRITION OPPORTUNITY COST OUTPUT PER CAPITA PAWN PAWN SHOPS POLITICAL ECONOMY POTENTIAL INVESTORS PRIME LENDING RATE PRIVATE INVESTMENT PRIVATE RETURNS PRODUCTION EFFICIENCY PRODUCTION FUNCTION PRODUCTIVE ASSETS PRODUCTIVE INVESTMENT PROFITABILITY PUBLIC FINANCE RATE OF RETURNS RATES OF RETURN RATES OF RETURNS REAL ESTATE REAL EXCHANGE RATES REAL INTEREST REAL INTEREST RATES RECESSIONS REPAYMENT RESIDUAL CLAIMANT RISK AVERSION RISK SHARING RURAL CREDIT RURAL CREDIT MARKET SAVINGS SELF EMPLOYMENT SHAREHOLDERS SHORT TERM INVESTMENTS SLR SMALL BUSINESS SMALL BUSINESSES SMALL ENTERPRISES SMALL FARM SOCIAL NORMS SOCIAL RELATIONS STATEMENT STOCK MARKET STOCKS TAX TAX COLLECTION TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT TOTAL FACTOR PRODUCTIVITY TRADE CREDIT TRANSACTION TRANSACTION COSTS UNDERVALUATION VALUE ADDED VILLAGE VILLAGES WORKING CAPITAL The point of departure of this paper is that in the absence of effectively functioning asset markets the distribution of wealth matters for efficiency. Inefficient asset markets depress total factor productivity (TFP) in two ways: first, by not allowing efficient firms to grow to the size that they should achieve (this could include many great firms that are never started); and second, by allowing inefficient firms to survive by depressing the demand for factors (good firms are too small) and hence factor prices. Both of these effects are dampened when the wealth of the economy is in the hands of the most productive people, again, for two reasons: first, because they do not rely as much on asset markets to get outside resources into the firm; and second, because wealth allows them to self insure and therefore they are more willing to take the right amount of risk. None of this, however, tells us that efficiency enhancing redistributions must always be targeted to the poorest. There is some reason to believe that a lot of the inefficiency lies in the fact that many medium size firms are too small. 2017-08-17T22:01:56Z 2017-08-17T22:01:56Z 2009 Working Paper http://documents.worldbank.org/curated/en/652441468161947001/Investment-efficiency-and-the-distribution-of-wealth http://hdl.handle.net/10986/27940 English en_US Commission on Growth and Development Working Paper;No. 53 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research :: Working Paper Publications & Research