Was Prometheus unbound by chance? Risk, diversification and growth
AbstractThis paper offers a theory of development that links the degree of market incompleteness to capital accumulation and growth. Because sectoral indivisibilities limit the extent of diversification, poor economies suffer higher volatility of growth and endogenously lower productivity. As the economy develops, agents hold more balanced portfolios and can take better advantage of high-return production opportunities. Although all agents are price takers and there are no technological spillovers, the decentralized equilibrium is inefficient because individuals do not internalize the impact of their investment decisions on others' diversification opportunities. The results generalize to economies with international capital flows. Copyright 1997 by the University of Chicago.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 98.
Date of creation: Nov 1994
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Web page: http://www.econ.upf.edu/
Other versions of this item:
- Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
- Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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