Private Incentives versus Class Interests: Implications for Growth
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.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Marco Battaglini & Stephen Coate, 2007. "A Dynamic Theory of Public Spending, Taxation and Debt," Discussion Papers 1441, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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2013-12, Brown University, Department of Economics.
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