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Private Incentives versus Class Interests: Implications for Growth

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  • Ani Guerdjikova

    (Cornell University)

  • Levon Barseghyan

    (Cornell University)

Abstract

We consider an economy, in which the elite controls the means of production. The private incentives of each elite member contradict the interests of the elite as a whole. While each member of the elite would benefit from engaging into new productive activities, the byproduct of such activities is an increase in competition and hence decrease in elite's profits. We provide a model which allows us to parameterize the degree of consolidation of the elite q. We find that in a steady-state, the rate at which new technologies are implemented is constant and is decreasing in q. We next allow the elite to invest into a productivity enhancing public good. We show that the investments in public good increase in q. We conclude that there exists an optimal level of consolidation of the elite which maximizes economic growth. We illustrate our model using examples from the period of the Industrial Revolution in England and Russia.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 795.

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Date of creation: 2007
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Handle: RePEc:red:sed007:795

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  1. William Jack & Roger Lagunoff, 2003. "Dynamic Enfranchisement," Levine's Bibliography 666156000000000030, UCLA Department of Economics.
  2. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  3. Naomi R. Lamoreaux & Kenneth L. Sokoloff, 2005. "The Decline of the Independent Inventor: A Schumpterian Story?," NBER Working Papers 11654, National Bureau of Economic Research, Inc.
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