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Coordinating Development: Can Income-based Incentive Schemes Eliminate Pareto Inferior Equilibria?


  • Philip Bond

    (Wharton School, University of Pennsylvania)

  • Rohini Pande

    () (Economic Growth Center, Yale University)


Individuals’ inability to coordinate investment may significantly constrain economic development. In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high investment outcome. A general property of this game is the presence of a crossover investment point at which an individual’s incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government’s knowledge of this crossover point can prevent unique implementation of the high investment outcome. We conclude that informational requirements are likely to severely limit a government’s ability to use income-based incentive schemes as a coordination device.

Suggested Citation

  • Philip Bond & Rohini Pande, 2005. "Coordinating Development: Can Income-based Incentive Schemes Eliminate Pareto Inferior Equilibria?," Working Papers 924, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:924

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    References listed on IDEAS

    1. Gary S. Becker & H. Gregg Lewis, 1974. "Interaction between Quantity and Quality of Children," NBER Chapters,in: Economics of the Family: Marriage, Children, and Human Capital, pages 81-90 National Bureau of Economic Research, Inc.
    2. Theodore W. Schultz, 1974. "Fertility and Economic Values," NBER Chapters,in: Economics of the Family: Marriage, Children, and Human Capital, pages 3-22 National Bureau of Economic Research, Inc.
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    More about this item


    Coordination; Public Policy; Income Taxation; Implementation;

    JEL classification:

    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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