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The Impact of Simple Institutions in Experimental Economies with Poverty Traps

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  • C. Mónica Capra
  • Tomomi Tanaka
  • Colin F. Camerer
  • Lauren Munyan
  • Veronica Sovero
  • Lisa Wang
  • Charles 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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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 666156000000000662.

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Date of creation: 18 Mar 2005
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Handle: RePEc:cla:levrem:666156000000000662

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Cited by:
  1. Ferruccio Ponzano & Roberto Ricciuti, 2012. "An Experimental AK Model of Growth," CESifo Working Paper Series 3744, CESifo Group Munich.
  2. Ernst Fehr & Jean-Robert Tyran, . "Money Illusion and Coordination Failure," IEW - Working Papers 177, Institute for Empirical Research in Economics - University of Zurich.
  3. 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, Northeastern Agricultural and Resource Economics Association, vol. 39(2), April.
  4. Jordi Brandts & David Cooper, 2006. "Observability and overcoming coordination failure in organizations: An experimental study," Experimental Economics, Springer, Springer, vol. 9(4), pages 407-423, December.
  5. 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.
  6. R. Isaac & Douglas Norton, 2013. "Endogenous institutions and the possibility of reverse crowding out," Public Choice, Springer, Springer, vol. 156(1), pages 253-284, July.
  7. Juan Camilo C�rdenas, 2009. "Experiments in Environment and Development," Annual Review of Resource Economics, Annual Reviews, Annual Reviews, vol. 1(1), pages 157-182, 09.
  8. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers, University of Pittsburgh, Department of Economics 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
  9. Im, Fernando Gabriel & Rosenblatt, David, 2013. "Middle-income traps : a conceptual and empirical survey," Policy Research Working Paper Series 6594, The World Bank.
  10. Jordi Brandts & David J. Cooper, 2005. "It's What You Say Not What You Pay," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 643.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  11. 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, Elsevier, vol. 91(C), pages 122-130.
  12. C. Monica Capra & Tomomi Tanaka, 2006. "Communication and the Extraction of Natural Renewable Resources with Threshold Externalities," Emory Economics, Department of Economics, Emory University (Atlanta) 0602, Department of Economics, Emory University (Atlanta).
  13. David Cooper, 2006. "Are experienced managers experts at overcoming coordination failure?," Artefactual Field Experiments, The Field Experiments Website 00037, The Field Experiments Website.

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