The search for growth-promoting policies is found to demand knowledge of how growth depends upon actions of entrepreneurs and how these actions depend upon the prevailing institutions. While institutions have extensively been examined for their influences upon the freedoms and the incentives of entrepreneurs, and thereby upon the level of employment of resources, this paper examines their influences upon the selection of entrepreneurs, and thereby upon the efficiency of that employment. This selection is crucial in the realistic but in theory seldom considered cases in which all agents, including entrepreneurs, may differ in economic abilities. A simple model shows that in the long run, selection by market competition, especially when extended to financial markets, vastly outperforms selection controlled or protected politically. Such selection may outperform market selection only during a limited period, extendable only at the price of growing bad debts and financial crises.
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Length: 43 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:iniesr:510
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Find related papers by JEL classification: D90 - Microeconomics - - Intertemporal Choice and Growth - - - General E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data) O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
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