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Private Incentives versus Class Interests: A Theory of Optimal Institutions with An Application to Growth

Listed author(s):
  • Ani Guerdjikova

    (Cornell University)

  • Levon Barseghyan

    (Cornell University)

We build a dynamic political economy model with a two-class society: workers and the elite. A key feature of the model is that the formation of the elite, the rate of innovation, taxes and public spending are endogenous. Differently from most of the literature on institutions and growth which emphasizes the conflict between different classes, we focus on the tension between private incentives of the members of the elite and their class interests. Our model explains the observed differences in colonization strategies by showing how the optimal choice of institutions depends on the initial conditions faced by colonizing powers. The model also creates a mapping between institutions and economic outcomes which is consistent with the observed differences in the patterns of economic growth.

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File URL: https://economicdynamics.org/meetpapers/2008/paper_939.pdf
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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 939.

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Date of creation: 2008
Handle: RePEc:red:sed008:939
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/society.htm
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  1. 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.
  2. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
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  5. Daron Acemoglu & James Robinson, 1999. "Democratization or Repression?," Working papers 99-27, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  8. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
  9. James A. Robinson & Daron Acemoglu, 2000. "Political Losers as a Barrier to Economic Development," American Economic Review, American Economic Association, vol. 90(2), pages 126-130, May.
  10. Acemoglu, D, 1996. "Why Did the West Extend the Franchise? Inequality and Growth in Historical Perspetive," Working papers 96-32, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Kenneth L. Sokoloff & Stanley L. Engerman, 2000. "Institutions, Factor Endowments, and Paths of Development in the New World," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 217-232, Summer.
  12. Kenneth L. Sokoloff & B. Zorina Khan, 1989. "The Democratization of Invention During Early Industrialization: Evidence From the United States, 1790-1846," UCLA Economics Working Papers 578, UCLA Department of Economics.
  13. Salvador Barbera & Matthew O. Jackson, 2004. "Choosing How to Choose: Self-Stable Majority Rules and Constitutions," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1011-1048.
  14. Jackson, Matthew O. & Barbera, Salvador, 2002. "Choosing How Choose: Self-Stable Majority Rules," Working Papers 1145, California Institute of Technology, Division of the Humanities and Social Sciences.
  15. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
  16. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
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