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The Voracity Effect: Comment

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  • Strulik, Holger

Abstract

In 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 Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-472.

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Length: 14 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:han:dpaper:dp-472

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Keywords: economic growth; common pool resources; voracity;

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  1. 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).
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