Working Paper: CEPR ID: DP6750
Authors: Hans Peter Grüner
Abstract: In most industrialized economies, financial wealth is distributed far more unequally than income. According to Wolff (2007) more than half of the American households possess almost no productive capital while realizing about 20 percent of national income. This mismatch poses a problem for the efficient aggregation of consumer needs on capital markets. Individuals use information about their own preferences as consumers to identify profitable investments. Under certain conditions, this behaviour efficiently matches future demand with productive capacity, thus replacing future markets for consumer goods. However, when wealth is distributed too unequally, capacity cannot match consumer needs. I present some first experimental evidence in favour of consumption driven investment behaviour based on real portfolio choices and self-reported preferences about consumer goods.
Keywords: capital markets; consumption driven investment; information aggregation; wealth distribution
JEL Codes: C91; G11; G14; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| equal wealth distribution (D31) | efficient capital market functioning (G10) |
| unequal wealth distribution (D31) | capital market efficiency (G14) |
| wealthiest individuals' preferences (D11) | investment decisions (G11) |
| investment behavior of wealthier individuals (D14) | mismatch between production and consumption (E20) |
| individuals' preferences (D11) | investment in companies (G30) |