DP5106 Patience Capital and the Demise of the Aristocracy

Author(s): Matthias Doepke , Fabrizio Zilibotti

Publication Date: June 2005

Keyword(s): discount factor , patience , British aristocracy , Industrial Revolution , capital accumulation , income distribution

JEL(s): N23 , O14 , O15 , Z10

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP5106.asp

We model the decision problem of a parent who chooses an occupation and invests in the patience of her children. The two choices complement each other: patient individuals choose occupations with a steep income profile; a steep income profile, in turn, leads to a strong incentive to invest in patience. In equilibrium, society becomes stratified along occupational lines. The most patient people are those in occupations requiring the most education and experience. The theory can account for the demise of the British land-owning aristocracy in the nineteenth century, when rich landowners proved unable to profit from new opportunities arising with industrialization, and were thus surpassed by industrialists rising from the middle classes.