Objectives
What is the relationship between inequality and the economic success of nations, firms, and local communities? This question is the central focus of a research network, based at the University of California, Berkeley. The establishment of the network in 1996 was motivated by recent developments in economics that challenge two views long held by most economists: inequality goes hand-in-hand with a nation's economic success, and that reducing economic inequalities inevitably compromises efficiency.

For instance, East Asian countries with relatively level distributions of income have dramatically outperformed Latin American countries with less equal income distributions. Investments in the nutrition, health, and education of poor children have produced not only more economic opportunity but higher economic performance. Indeed, emerging economic theory suggests that inequality may have adverse effects, blunting productive incentives and fueling costly conflicts between haves and have-nots.

Traditional debates about equality and redistributive policies, we now understand, pitted one partial and incomplete viewpoint against another: egalitarians favored an idealized conception of government interventions and downplayed incentive problems in the public sector, while their adversaries opposed these interventions in favor of an idealized view of the private economy, overlooking the incentive problems posed by inequality in the process of private exchange.

The network's goal is to create a better framework for understanding the consequences of economic inequality and the constraints facing attempts to alleviate it. The Network on the Effects of Inequality on Economic Performance brings together economists, political scientists, and sociologists from the United States, India, and Europe with expertise ranging from field work in economic anthropology to microeconomic theory.

Approach
In statistical and theoretical studies, and in field work in different parts of the world, the network attempts to provide answers to the following overarching question: Do inequalities of assets, economic rewards, or status foster institutional failures which impede economic performance, and, if so, how might these inequalities and failures be rectified without introducing new sources of inefficiency?

Preliminary exploration of this question has led the network to focus on four, more specific, questions: How does inequality affect cooperation in local communities, and with what impact on the local environment and other public goods (like irrigation water, neighborhood safety and other residential amenities, fisheries, forestry, and grazing lands)? How do inequalities affect the efficiency and productivity of farms, firms, and other entities, and are there more efficient forms of governance that can be promoted? How do sharp economic disparities among citizens affect bargaining, policymaking, and economic performance at a national level? And finally, what principles can guide the design of efficient and politically viable policies to alleviate poverty and enhance economic opportunity for the less well off?

Network Information