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The Impact of Simple Institutions in Experimental Economies with Poverty Traps

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

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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Bibliographic 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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Citations

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Cited by:
  1. Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations. An Experimental Study," Working Papers 143, Barcelona Graduate School of Economics.
  2. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
  3. 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).
  4. Ernst Fehr & Jean-Robert Tyran, 2004. "Money illusion and coordination failure," University of St. Gallen Department of Economics working paper series 2004 2004-02, Department of Economics, University of St. Gallen.
  5. R. Isaac & Douglas Norton, 2013. "Endogenous institutions and the possibility of reverse crowding out," Public Choice, Springer, vol. 156(1), pages 253-284, July.
  6. Juan Camilo C�rdenas, 2009. "Experiments in Environment and Development," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 157-182, 09.
  7. Ferruccio Ponzano & Roberto Ricciuti, 2012. "An Experimental AK Model of Growth," CESifo Working Paper Series 3744, CESifo Group Munich.
  8. Jordi Brandts & David J. Cooper, 2005. "It's What You Say Not What You Pay. An Experimental Study of Manager-Employee Relationship in Overcoming Coordination Failure," Working Papers 162, Barcelona Graduate School of Economics.
  9. David Cooper, 2006. "Are experienced managers experts at overcoming coordination failure?," Artefactual Field Experiments 00037, The Field Experiments Website.
  10. Lybbert, Travis J. & Galarza, Francisco B. & McPeak, John G. & Barrett, Christopher B. & Boucher, Stephen R. & Carter, Michael R. & Chantarat, Sommarat & Fadlaoui, Aziz & Mude, Andrew G., 2010. "Dynamic Field Experiments in Development Economics: Risk Valuation in Morocco, Kenya, and Peru," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(2), April.
  11. C. Monica Capra & Tomomi Tanaka, 2006. "Communication and the Extraction of Natural Renewable Resources with Threshold Externalities," Emory Economics 0602, Department of Economics, Emory University (Atlanta).
  12. Bernard, Mark & Dreber, Anna & Strimling, Pontus & Eriksson, Kimmo, 2013. "The subgroup problem: When can binding voting on extractions from a common pool resource overcome the tragedy of the commons?," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 122-130.
  13. Im, Fernando Gabriel & Rosenblatt, David, 2013. "Middle-income traps : a conceptual and empirical survey," Policy Research Working Paper Series 6594, The World Bank.

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