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Sectoral Differentiation, Allocation of Talent, and Financial Development

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Esteban Jaimovich

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Abstract

This paper presents a theory in which economic development manifests itself primarily as a process of sectoral differentiation. As the variety of sectors expands, the allocation of heterogeneously talented individuals improves. The paper claims that, besides increasing the average productivity of the economy, this process also mitigates informational frictions a¤ecting the performance of financial markets. In particular, sectoral differentiation alle- viates adverse selection problems linked to the allocation of talent, which would prevent the efficient operation of financial markets. Over the path of development, an economy typically exhibits a continuous increase in the variety of productive activities available to its individuals, and this leads to a reduction in agency-costs faced by financial institutions. However, the paper shows that a poverty-trap may also arise. This undesirable situation is characterised by a rudimentary productive structure, where agents find it very difficult to exercise their skills, and financial markets operation is severely affected by the talent mismatching.

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Publisher Info
Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 59.

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Length: 39 pages
Date of creation: 2007
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Handle: RePEc:cca:wpaper:59

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Related research
Keywords: Sectoral Diversification Talent Allocation Adverse Selection Horizontal Innovation.

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Find related papers by JEL classification:
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
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. Daniela Del Boca & Daniela Vuri, 2006. "The Mismatch between Employment and Child Care in Italy: the Impact of Rationing," CHILD Working Papers wp08_06, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY. [Downloadable!]
    Other versions:
  2. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2004. "Portfolio Selection with Monotone Mean-Variance Preferences," ICER Working Papers - Applied Mathematics Series 27-2004, ICER - International Centre for Economic Research, revised Dec 2004. [Downloadable!]
    Other versions:
  3. Massimiliano Amarante & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2006. "Cores of Non-Atomic Market Games," Carlo Alberto Notebooks 13, Collegio Carlo Alberto. [Downloadable!]
    Other versions:
  4. Daniela Del Boca & Robert M. Sauer, 2006. "Life Cycle Employment and Fertility Across Institutional Environments," IZA Discussion Papers 2285, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2006. "Recursive Smooth Ambiguity Preferences," Carlo Alberto Notebooks 17, Collegio Carlo Alberto. [Downloadable!]
  6. Giovanni Mastrobuoni & Wioletta Dziuda, 2005. "The Euro Changeover and its Effects on Price Transparency and Inflation," Carlo Alberto Notebooks 26, Collegio Carlo Alberto, revised 2006. [Downloadable!]
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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. Russell Gerrard & Bjarne Højgaard & Elena Vigna, 2008. "Choosing the Optimal Annuitization Time Post Retirement," Carlo Alberto Notebooks 76, Collegio Carlo Alberto. [Downloadable!]
  2. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2008. "A Theory of Military Dictatorships," Carlo Alberto Notebooks 74, Collegio Carlo Alberto. [Downloadable!]
    Other versions:
  3. Itzhak Gilboa & Fabio Maccheroni & Massimo Marinacci & David Schmeidler, 2008. "Objective and Subjective Rationality in a Multiple Prior Model," Carlo Alberto Notebooks 73, Collegio Carlo Alberto. [Downloadable!]
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