Inequality and Collective Action

In this paper we analyze the effect of inequality in the distribution of endowments of privateinputs (like land, capital) on production efficiency through its effect on the voluntary provisionof collective inputs (like irrigation, public research) that are complementary in production withthose private inputs. The collective inputs can be both of the kind in which one producerbenefits from their use by others (as in the case of research and extension) and the kind inwhich one’s use detracts from potential use by others (as in the case of irrigation water froma pond). Markets in the private inputs are assumed to be imperfect, inhibiting their efficientallocation across individuals. In this context we work out how an increase in inequality in thedistribution of private inputs affects the voluntary provision or use of the collective inputs andthe total production surplus in this simple economy. In general we show that while productionsurplus increases with greater equality within the group of contributors (users) and the groupof non-contributors (non-users) to the collective input, in some situations there is an optimaldegree of inequality between the two groups.[...]