Wealth Inequality and Economic Power: A Sequential Bargaining Analysis

Abstract This paper adapts a matching and bargaining model due to Rubinstein and Wolinsky ( ) to analyze the connection between wealth inequality and economic power, understood as the ability to command a positive share of the net gains from given production relations. The analysis indicates that the translation of superior wealth in productive assets into economic power depends on an inverse relationship between wealth and bargaining costs at the level of individual transactions when significant exchange frictions exist and persistent capital scarcity at the level of market equilibrium as exchange frictions become small. Different interpretations of this scarcity condition are discussed.