Network dependent altruism and economic growth

Abstract

This thesis studies reference dependent agents in a static network where the reference point is the average behaviour in one's neighbourhood. It shows that the economy grows at a constant rate on the balanced growth path while income inequality and the speed of convergence depend on the specific network structure. For particular networks, initial inequalities remain in the long-run. However, it is also possible that depending on the location of agents, a lagged agent may surpass the ones who had higher initial human capital than her and as a result, a society that has too disperse initial distribution may admit an equilibrium in which the wealth distribution converges towards equality in the long-run. In short, in an economy at which the production depends on human capital, income inequalities can be explained by taking the network structure of the economy into account.