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A Tale of Markets and Jungles in a Simple Model of Growth

  • Thomas Gall

    ()

    (Economic Theory II, University of Bonn)

  • Paolo Masella

    ()

    (STICERD, London School of Economics)

Institutions determine prospects for economic growth and development. This paper collapses potentially complex interactions of different institutions into a simple condition on the primitives that determines whether a society supports spot markets or not. In a dynamic model of an agrarian economy agents are heterogeneous in land holdings, skill, and food endowments. Food holdings serve as a proxy for agents' power to expropriate. The main point of interest is whether land is assigned to the skilled or to the powerful, i.e.\ by coalitional expropriation or by markets. The model finds two different types of limit behavior: a sequence of stable markets and a limit cycle where markets and expropriation alternate. More equal first period endowment distributions facilitate sustainable markets that, in turn, enhance economic efficiency and decrease macroeconomic fluctuations.

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Paper provided by JEPS in its series JEPS Working Papers with number 07-004.

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Length: 39 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:jep:wpaper:07004
Contact details of provider: Web page: http://jeps.repec.org/

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  1. Grossman, Herschel I, 1994. "Production, Appropriation, and Land Reform," American Economic Review, American Economic Association, vol. 84(3), pages 705-12, June.
  2. Aaron Tornell, 1995. "Economic Growth and Decline with Endogenous Property Rights," Harvard Institute of Economic Research Working Papers 1739, Harvard - Institute of Economic Research.
  3. Stanley L Engerman & Kenneth L. Sokoloff, 2002. "Factor Endowments, Inequality, and Paths of Development Among New World Economics," NBER Working Papers 9259, National Bureau of Economic Research, Inc.
  4. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  5. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  7. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
  8. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
  9. Timothy Besley & Torsten Persson, 2009. "The origins of state capacity: property rights, taxation and politics," LSE Research Online Documents on Economics 33768, London School of Economics and Political Science, LSE Library.
  10. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  11. Daron Acemoglu & James A. Robinson, 2006. "Persistence of Power, Elites and Institutions," NBER Working Papers 12108, National Bureau of Economic Research, Inc.
  12. Raghuram Rajan & Luigi Zingales, 2003. "The Emergence of Strong Property Rights: Speculation from history," NBER Working Papers 9478, National Bureau of Economic Research, Inc.
  13. Muthoo, Abhinay, 2004. "A model of the origins of basic property rights," Games and Economic Behavior, Elsevier, vol. 49(2), pages 288-312, November.
  14. Gradstein, Mark, 2004. "Governance and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 505-518, April.
  15. Michele Piccione & Ariel Rubinstein, 2007. "Equilibrium in the Jungle," Economic Journal, Royal Economic Society, vol. 117(522), pages 883-896, 07.
  16. Konrad, Kai A. & Skaperdas, Stergios, 1999. "The Market for Protection and the Origin of the State," CEPR Discussion Papers 2173, C.E.P.R. Discussion Papers.
  17. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
  18. Herschel I. Grossman, 2000. "The Creation of Effective Property Rights," NBER Working Papers 7897, National Bureau of Economic Research, Inc.
  19. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  20. Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2004. "Do democracies have different public policies than non-democracies?," Discussion Papers 0304-14, Columbia University, Department of Economics.
  21. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  22. repec:rus:hseeco:72152 is not listed on IDEAS
  23. Thomas Gall, 2008. "Lotteries, inequality, and market imperfection: Galor and Zeira go gambling," Economic Theory, Springer, vol. 34(2), pages 359-382, February.
  24. Jordan, J.S., 2006. "Pillage and property," Journal of Economic Theory, Elsevier, vol. 131(1), pages 26-44, November.
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