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Inequality: An Explanation Using State-Utility And Information Asymmetry

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Executive Summary

There has been much debate about the increasing inequality both across the countries (e.g. Europe vs. Africa) and within a country (e.g. in India Bihar vs. Maharashtra). At both the macro and micro level researchers have tried to explain this unwanted by-product of growth and globalization. Many of the models can be categorized as using production-technology difference approach (including human and physical capital, technological advancements etc.) or more recently, institutions/ social-capital difference approach. For example, Burgess and Venables (2004) state that spatial inequalities tend to increase during periods of rapid economic development. Datt and Ravallion (2002) find that in India there is considerable diversity in performance across states in the economic growth unleashed by economic reforms in the 1990s.

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