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Can't We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World

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  • Acemoglu, Daron
  • Robinson, James A
  • Verdier, Thierry

Abstract

Because of their more limited inequality and more comprehensive social welfare systems, many perceive average welfare to be higher in Scandinavian societies than in the United States. Why then does the United States not adopt Scandinavian-style institutions? More generally, in an interdependent world, would we expect all countries to adopt the same institutions? To provide theoretical answers to this question, we develop a simple model of economic growth in a world in which all countries bene…t and potentially contribute to advances in the world technology frontier. A greater gap of incomes between successful and unsuccessful entrepreneurs (thus greater inequality) increases entrepreneurial e¤ort and hence a country’s contribution to the world technology frontier. We show that, under plausible assumptions, the world equilibrium is asymmetric: some countries will opt for a type of “cutthroat”capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free- ride on the cutthroat incentives of the leaders and choose a more “cuddly” form of capitalism. Paradoxically, those with cuddly reward structures, though poorer, may have higher welfare than cutthroat capitalists; but in the world equilibrium, it is not a best response for the cutthroat capitalists to switch to a more cuddly form of capitalism. We also show that domestic constraints from social democratic parties or unions may be bene…cial for a country because they prevent cutthroat capitalism domestically, instead inducing other countries to play this role.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9113.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9113

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Keywords: cutthroat capitalism; economic growth; inequality; innovation; interdependency;

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References

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Cited by:
  1. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2012. "Catch-up and Fall-back through Innovation and Imitation," NBER Working Papers 18091, National Bureau of Economic Research, Inc.
  2. Braunerhjelm , Pontus & Henrekson, Magnus, 2012. "Entrepreneurship, Institutions and Economic Dynamism: Lessons from a Comparison of the United States and Sweden," Working Paper Series in Economics and Institutions of Innovation 290, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  3. Salvador Barberà & Carmen Beviá & Clara Ponsatí, 2014. "Meritocracy, Egalitarianism and the Stability of Majoritarian Organizations," Working Papers 737, Barcelona Graduate School of Economics.
  4. repec:cge:warwcg:155 is not listed on IDEAS
  5. Wietzke, Frank-Borge, 2014. "Pathways from jobs to social cohesion," Policy Research Working Paper Series 6804, The World Bank.
  6. Sanjay Jain & Sumon Majumdar & Sharun Mukand, 2014. "Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform," CESifo Working Paper Series 4648, CESifo Group Munich.
  7. Joscha Beckmann & Marek Endrich & Rainer Schweickert, 2014. "Government Activity and Economic Growth – One Size Fits All?," Kiel Working Papers 1903, Kiel Institute for the World Economy.

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