1,722,510 research outputs found
Was Prometheus unbound by chance? Risk diversification and growth
Full text linkThis paper offers a theory of development that links the degree of market incompleteness to capital accumulation and growth. At early stages of development, the presence projects limits the degree of risk spreading (diversification) that the economy can achieve. The desire to avoid highly risky investments slows down capital accumulation, and the inability to diversify idiosyncratic risk introduces a large amount of uncertainty in the growth process. The typical development pattern will consist of a lengthy period of “primitive accumulation” with highly variable output, followed by takeoff and financial deepening and, finally, steady growth. “Lucky” countries will spend relatively less time in the primitive accumulation stage and develop faster. Although all agents are price takers and there are no technological spillovers, the decentralized equilibrium is inefficient because individuals do not take into account their impact on others' diversification opportunities. We also show that our results generalize to economies with international capital flows
Search with multi-worker firms
Full text linkWe present a generalization of the standard random-search model of unemployment in which firms hire multiple workers and in which the hiring process is time-consuming as well as costly. We follow Stole and Zwiebel (1996a, 1996b) and assume that wages are determined by continuous bargaining between the firm and its employees. The model generates a nontrivial dispersion of firm sizes; when firms' production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even when all firms and all workers are ex ante identical. We characterize the steady-state equilibrium and show that, with a suitably chosen distribution of ex ante heterogeneity across firms, it is consistent with several important stylized facts about the joint distribution of firm size, firm growth, and wages in the U.S. economy. We also conduct a numerical investigation of the out-of-steady-state dynamics of our model. We find that the responses of unemployment and of the vacancy-to-unemployment ratio to a shock to labor productivity can be somewhat more persistent than in the Mortensen–Pissarides benchmark where each firm employs a single worker
Is This Time Different? Capture and Anti-Capture of US Politics
No full textSocieties are molded by their institutions that determine both their levels of prosperity and how that prosperity is distributed within society. For most of its history the U.S. has had economic institutions which have been comparatively inclusive in the sense that economic opportunities have been open to most, the playing field has been level, and property rights have been secure. The inclusiveness of economic institutions has meant that the U.S. has been fully able to harness the talent of its citizens who have consequently experienced high rates of social mobility
The choice between market failures and corruption
No full textBecause government intervention transfers resources from one party to another, it creates room for corruption. As corruption often undermines the purpose of the intervention, governments will try to prevent it. They may create rents for bureaucrats, induce a misallocation of resources, and increase the size of the bureaucracy. Since preventing all corruption is excessively costly, second-best intervention may involve a certain fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there may be both more bureaucrats and higher public-sector wages. Also, the optimal degree of government intervention may be nonmonotonic in the level of incom
Institutions, Factor Prices, and Taxation: Virtues of Strong States?
No full textWhile in a few societies economic institutions
are designed to provide property rights protection,
a level playing field, and basic public goods
necessary for economic growth, in many they
are structured to maximize the rents captured
by the “elite,” the individuals or social groups
monopolizing political power (e.g., Douglass
C. North 1981; Acemoglu, Simon Johnson,
and James A. Robinson 2005. The elite often
choose entry barriers, regulations and inefficient
contracting institutions that retard economic
growth and create resource misallocations in
order to protect their economic rents and redistribute
resources to themselves (e.g., Mancur
Olson 1982; Per Krusell and Jose-Victor Rios-
Rull 1996).1 However, if resources could be
redistributed to the elite with fewer distortions, a
more efficient allocation of resources, with (part
of) the proceeds accruing to the elite, could be
chosen. For example, when the necessary fiscal
instruments and the associated state capacity
are absent, the elite may choose economic institutions
and policies so as to redistribute income
to themselves by reducing the productivity of
competing groups and thus manipulating factor
prices (Acemoglu 2007). Direct taxation, if
feasible, would be both more efficient and more
profitable for the elite.
This reasoning suggests that when the state
becomes more “developed,” achieves greater
“capacity,” and has access to a larger set of fiscal
instruments, there will be less need for such
1 A second, perhaps more important reason is that the elite
may be afraid that a more efficient allocation of resources
will reduce their political power and their future ability to
obtain rents (e.g., Acemoglu and Robinson 2000, 2006).
Institutions and Development †
Institutions, Factor Prices, and Taxation: Virtues of Strong States?
By Daron Acemoglu*
inefficient, indirect methods of redistribution
and the allocation of resources will improve
(e.g., Acemoglu 2007; Timothy J. Besley and
Torsten Persson 2010). The example of the
development of the English state and economy
in the eighteenth century is often used to support
this presumption.
This paper points out that, in contrast to this
argument, the availability of more efficient
means of taxation is a double-edged sword
because of its impact on the political equilibrium;
because more efficient means of taxation
increase the potential benefits of controlling
the state, they may also intensify political conflict
aimed at capturing this control. This indirect
effect counteracts the benefits from more
efficient taxation and may dominate the direct
effect, so that the allocation of resources may
deteriorate when the society and the state have
access to additional fiscal instruments. More
generally, although greater state capacity and
stronger states may bring a variety of economic
benefits, they will also increase the value of
controlling the state and thus induce increased
political conflict and infighting. Therefore, the
virtues of strong states emerge when the increase
in the economic strength of the state is a consequence
of, or coincident with, an increase in
the political accountability of rulers and politicians—
not necessarily when there is an autonomous
increase in the fiscal capacity of the state
Dynamics and Stability of Constitutions, Coalitions, and Clubs
Full text linkA central feature of dynamic collective decision-making is that the rules that govern procedures for
future decision-making and the distribution of political power across players are determined by current
decisions. For example, current constitutional change must take into account how the new constitution
paves the way for further changes in laws and regulations. We develop a general framework for the
analysis of this class of dynamic problems. Under relatively natural acyclicity assumptions, we provide
a complete characterization of dynamically stable states as functions of the initial state and determine
conditions for their uniqueness. The explicit characterization we provide highlights two intuitive features
of dynamic collective decision-making: (1) a social arrangement is made stable by the instability of
alternative arrangements that are preferred by sufficiently many members of the society; (2) efficiency-
enhancing changes are often resisted because of further social changes that they will engender. Finally,
we apply this framework to the analysis of the dynamics of political rights in a society with different
types of extremist views
Equalizing Superstars: The Internet and the Democratization of Education
Full text linkEducational resources distributed via the Internet are rapidly proliferating. One prominent concern associated with these potentially transformative developments is that, as many of the leading technologies of the last several decades have been, these new sweeping technological changes will be highly disequalizing, creating superstar teachers, a wider gulf between different groups of students and potentially a winner-take-all educational system. In this paper, we argue that, these important concerns notwithstanding, a major impact of the superstars created by web based educational technologies will be the democratization of education: not only will educational resources be more equally distributed, but also lower-skilled teachers will be winners from this technology. At the root of our results is the observation that for web-based technologies to exploit the comparative advantage of skilled lecturers, they will need to be complemented with opportunities for face-to-face discussions with instructors, and web-based lectures will increase the quantity and quality of teaching services complementary to such instruction, potentially increasing the marginal product and wages of lower-skill teachers
Chiefs: Economic Development and Elite Control of Civil Society in Sierra Leone
Full text linkWe study the effect of constraints on chiefs' power on economic outcomes, citizens' attitudes, and social capital. A paramount chief in Sierra Leone must come from a ruling family originally recognized by British colonial authorities. In chiefdoms with fewer ruling families, chiefs face less political competition, and development outcomes are significantly worse today. Variation in the security of property rights over land is a potential mechanism. Paradoxically, with fewer ruling families, the institutions of chiefs' authority are more highly respected, and measured social capital is higher. We argue that these results reflect the capture of civil society organizations by chiefs
Why Do Voters Dismantle Checks and Balances?
Full text linkVoters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or influence politicians through non-electoral means. In weakly institutionalized polities where such non-electoral influences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these influences. When they do so, they are effectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when the elite is better organized and is more likely to be able to influence or bribe politicians, and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We also provide case study evidence from Bolivia, Ecuador, and Venezuela consistent with the model.Canadian Institute for Advanced ResearchNational Science Foundation (U.S.)United States. Air Force Office of Scientific Researc
The Economics of Labor Coercion
No full textThe majority of labor transactions throughout much of history and a significant fraction of such transactions in many developing countries today are “coercive,” in the sense that force or the threat of force plays a central role in convincing workers to accept employment or its terms. We propose a tractable principal–agent model of coercion, based on the idea that coercive activities by employers, or “guns,” affect the participation constraint of workers. We show that coercion and effort are complements, so that coercion increases effort, but coercion always reduces utilitarian social welfare. Better outside options for workers reduce coercion because of the complementarity between coercion and effort: workers with a better outside option exert lower effort in equilibrium and thus are coerced less. Greater demand for labor increases coercion because it increases equilibrium effort. We investigate the interaction between outside options, market prices, and other economic variables by embedding the (coercive) principal–agent relationship in a general equilibrium setup, and studying when and how labor scarcity encourages coercion. General (market) equilibrium interactions working through the price of output lead to a positive relationship between labor scarcity and coercion along the lines of ideas suggested by Domar, while interactions those working through the outside option lead to a negative relationship similar to ideas advanced in neo-Malthusian historical analyses of the decline of feudalism. In net, a decline in available labor increases coercion in general equilibrium if and only if its direct (partial equilibrium) effect is to increase the price of output by more than it increases outside options. Our model also suggests that markets in slaves make slaves worse off, conditional on enslavement, and that coercion is more viable in industries that do not require relationship-specific investment by workers
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