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The Impact of Simple Institutions in Experimental Economies with Poverty Traps

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Author Info
C.Mónica Capra
Tomomi Tanaka
ColinF. Camerer
Lauren Feiler
Veronica Sovero
CharlesN. Noussair

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Abstract

We introduce an experimental approach to study the effect of institutions on economic growth. In each period, agents produce and trade output in a market, and allocate it to consumption and investment. Productivity is higher if total capital stock is above a threshold. The threshold externality generates two steady states - a suboptimal 'poverty trap' and an optimal steady state. In a baseline treatment, the economies converge to the poverty trap. However, the ability to make public announcements or to vote on competing and binding policies, increases output, welfare and capital stock. Combining these two simple institutions guarantees that the economies escape the poverty trap. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2009.02262.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 539 (07)
Pages: 977-1009
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Handle: RePEc:ecj:econjl:v:119:y:2009:i:539:p:977-1009

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. C. Mónica Capra & Tomomi Tanaka, 2006. "Communication and the extraction of natural renewable resources with threshold externalities," Emory Economics 0602, Department of Economics, Emory University (Atlanta). [Downloadable!]
  2. Jordi Brandts & David J. Cooper, 2005. "It's What You Say Not What You Pay," UFAE and IAE Working Papers 643.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  3. repec:bep:eapadv:v:6:y:2006:i:2:p:1479-1479 is not listed on IDEAS
  4. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Mar 2008. [Downloadable!]
  5. Jordi Brandts & David Cooper, 2006. "Observability and overcoming coordination failure in organizations: An experimental study," Experimental Economics, Springer, vol. 9(4), pages 407-423, December. [Downloadable!] (restricted)
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