This paper builds a model in which the distribution of income matters for capital formation, and uses it to analyze the effects of a simple policy intended to create a more equal distribution of income on the severity of certain credit market imperfections and, through this channel, capital...

This paper develops a model in which two information frictions are embedded into an otherwise conventional neoclassical growth model: an adverse selection problem in the labor market and a costly state verification problem in the credit market. The former allows equilibrium unemployment to arise...