Preventing Widening Inequality: Economic Rents and Sustainable Heterogeneity

There has long been a deep-rooted view that economic rents are foremost among the origins of high levels of economic inequality. In this paper, economic rents generated by ranking preference are examined as an important source of widening inequality based on the concept of sustainable heterogeneity. Ranking preference generates widespread and large monopoly rents across an economy because they can be obtained through firms’ product differentiations, but this topic has not been studied as a source of economic inequality. This paper shows that these monopoly rents can greatly accelerate economic inequality because access to these rents is intrinsically heterogeneous among households and are unevenly distributed and persistent. Nevertheless, if a government appropriately intervenes, the acceleration of inequality can be prevented