In recent years political organizations in many countries have advanced proposals to cap the ratio of top-management pay to the pay of the workers under them. In this lecture, Francesco Caselli, Norman Sosnow Professor of Economics at the London School of Economics, will present some likely implications of such policies on overall economic efficiency and the income distribution, when the economy is otherwise free of distortions. He will also discuss how the addition of realistic frictions to the economy may enhance the attractiveness of pay-ratio policies.