THE DISTRIBUTION OF WEALTH AND THE EFFICIENCY OF INSTITUTIONS

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Abstract
This paper explores the efect on economic efficiency of the distribution of wealth and systems for enforcing property rights. We construct a two‐person, two‐period economy in which each person can consume, plant, transfer or steal corn. We find circumstances in which redistribution of wealth is Pareto optimal and in which increasing sanctions against theft to their maximum level is not. These results suggest that it is not only important to consider distribution in the design of property institutions, but also that redistribution itself may serve to increase the efficiency of systems of property rights.