The Voracity Effect: Comment
AbstractIn an influential article Tornell and Lane (1999) considered an economy populated by multiple powerful groups in which property rights in the formal sector of production are not protected. They obtained conditions under which the groups appropriate output from the formal sector in order to invest it in an informal sector in which productivity is lower and private property is protected. They also obtained conditions under which voracity occurs such that a permanent positive shock in the formal sector leads to lower growth. Here I show that not investing in the informal sector is a pareto-superior Nash equilibrium under the mild condition of an elasticity of intertemporal substitution in consumption smaller than unity. As a corollary, voracity disappears.
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Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-472.
Length: 14 pages
Date of creation: May 2011
Date of revision:
economic growth; common pool resources; voracity;
Find related papers by JEL classification:
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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- Ogaki, M & Reinhart, C-M, 1995.
"Measuring Intertemporal Substitution : The Role of Durable Goods,"
RCER Working Papers
404, University of Rochester - Center for Economic Research (RCER).
- Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October.
- Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
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