The Poor, the Rich and the Enforcer: Institutional Choice and Growth
AbstractWe study economies where improving the quality of institutions – modeled as improving contract enforcement – requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe enables us to formalize the hypothesis formulated by Engerman and Sokoloff (2002) that the initial concentration of human and physical capital can explain the divergence of different countries’ institutional history.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1150.
Length: 38 pages
Date of creation: Dec 2007
Date of revision:
Enforcement as a Choice; Institutions; Inequality; Human and Physical Capital;
Other versions of this item:
- Erwan Quintin & Cyril Monnet & Thorsten Koeppl, 2008. "The Poor, the Rich and the Enforcer: Institutional Choice and Growth," 2008 Meeting Papers 281, Society for Economic Dynamics.
- Erwan Quintin & Thorsten Koeppl & Cyril Monnet, 2008. "The poor, the rich and the enforcer: institutional choice and growth," Working Papers 0801, Federal Reserve Bank of Dallas.
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-19 (All new papers)
- NEP-DEV-2008-01-19 (Development)
- NEP-HAP-2008-01-19 (Economics of Happiness)
- NEP-HRM-2008-01-19 (Human Capital & Human Resource Management)
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