This paper presents a model where individuals decide to become workers or entrepreneurs in the presence of capital constraints and where individuals differ in wealth levels. The model shows that the higher the initial level of inequality in wealth is, the lower the long run aggregate wealth of the economy and the higher the long run inequality will be.
CSAE Economics Department, University of Oxford, Oxford, UK. CSAE WPS/2010-08, 21 pp.
Occupational choice and inequality traps.