Theoretical studies of inequality, prediction, and the informal sector

My dissertation comprises three theoretical chapters on inequality, predation, and the informal sector.; The first chapter develops a model of the inequality in wages and salaries associated with differences in years of schooling (educational inequality, for short). The model assumes that in the long run individual decisions to become more educated equalize the lifetime earnings of more educated workers and comparable less educated workers. Given this assumption the model has the novel implication that in the long run innovations that increase differences between the wages and salaries received by workers with the same years of education who are more or less able (ability premiums, for short), by causing a smaller fraction of workers to choose to become more educated, cause educational inequality to be larger than otherwise.; The second chapter relates three types of technological changes to the choice to be a more educated worker, a less educated worker, or a predator. First, a technological improvement of predation increases the number of predators and causes decreases in the numbers of both more educated workers and less educated workers. Second, a technological innovation that increases the relative demand for more educated labor increases the number of more educated workers, decreases the number of less educated workers, and does not affect the number of predators. Third, a technological innovation that increases ability premium decreases the number of more educated workers and increases the number of predators.; The last chapter suggests that we can attribute the existence of a large informal sector to the fact that, because productive endowments contain important unobservable components, the state cannot adjust the amounts that it extracts from producers in the formal sector according to each producer's endowment. Given this fact we find that both a proprietary state, which maximizes its net revenue, and a hypothetical benevolent state, which maximizes the sum of the net income of producers, could induce poorly endowed producers to work in the informal sector. But, importantly, the paper reveals that a proprietary state would create an informal sector for a larger set of combinations of parameter values than would a hypothetical benevolent state.