AI just completed another paper (this time with my longtime partner in crime Vadim Kufenko) where we question an hypothesis advanced by Samuel Bowles regarding the cost of inequality. In the process, we proposed an alternative explanation which has implications for the evaluation of the war on drugs.
In recent years, Samuel Bowles (2012) has advanced a theory (well-embedded within neoclassical theoretical elements while remaining elegantly simple) whereby inequality increases distrust which in turn magnifies agency problems. This forces firms to expend more resources on supervision and protection which means an expansion of the “guard labor force” (or supervisory labor force). Basically, he argues there is an over-provision of security and supervision. That is the cost of inequality which Bowles presents as a coordination failure. We propose an alternative explanation for the size of the guard and supervisory labor forces.