Wealth Dynamics in Communities

Research output: Contribution to journalArticlepeer-review


This article develops a model to explore how favour exchange influences wealth dynamics. We identify a key obstacle to wealth accumulation: wealth crowds out favour exchange. Therefore, households must choose between growing their wealth and accessing favour exchange. We show that low-wealth households rely on favour exchange at the cost of having tightly limited long-term wealth. As a result, initial wealth disparities persist and can even grow worse. We then explore how communities and policymakers can overcome this obstacle. Using simulations, we show that community benefits and place-based policies can stimulate both saving and favour exchange, and in some cases, can even transform favour exchange into a force that accelerates wealth accumulation.

Original languageEnglish (US)
Pages (from-to)1642-1668
Number of pages27
JournalReview of Economic Studies
Issue number4
StatePublished - Jul 1 2023


  • C73
  • D15
  • D31
  • Favour exchange
  • Inequality
  • O17
  • Under-investment
  • Wealth dynamics

ASJC Scopus subject areas

  • Economics and Econometrics


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