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The Impact of Simple Institutions in Experimental Economies with Poverty Traps

Capra, C. Mónica and Tanaka, Tomomi and Camerer, Colin F. and Feiler, Lauren and Sovero, Veronica and Noussair, Charles N. (2009) The Impact of Simple Institutions in Experimental Economies with Poverty Traps. Economic Journal, 119 (539). pp. 977-1009. ISSN 0013-0133. doi:10.1111/j.1468-0297.2009.02262.x.

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We introduce an experimental approach to study the effect of institutions on economic growth. In each period, agents produce and trade output in a market, and allocate it to consumption and investment. Productivity is higher if total capital stock is above a threshold. The threshold externality generates two steady states – a suboptimal poverty trap and an optimal steady state. In a baseline treatment, the economies converge to the poverty trap. However, the ability to make public announcements or to vote on competing and binding policies, increases output, welfare and capital stock. Combining these two simple institutions guarantees that the economies escape the poverty trap.

Item Type:Article
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Camerer, Colin F.0000-0003-4049-1871
Additional Information:© The Author(s). Journal compilation © 2009 Royal Economic Society. Completed: 28 February 2005 Submitted: 30 August 2006; Accepted: 29 May 2008. Article first published online: 11 Jun. 2009. We gratefully acknowledge financial support from Emory University and the Gordon and Betty Moore Foundation (grant to Camerer at Caltech). We thank audiences at George Mason University, McGill University, Caltech, the ESA International Meetings in Amsterdam (June 2004), the ESA Regional Meetings in Tucson, Arizona (November 2004) and the International Meeting on Experimental and Behavioural Economics in Cordoba, Spain (December 2004), the Dutch National Bank (November 2007) and several referees, for useful comments. Vivian Lei and Kenneth Matheny provided key initial insights about how growth could be studied in the laboratory.
Funding AgencyGrant Number
Emory UniversityUNSPECIFIED
Gordon and Betty Moore FoundationUNSPECIFIED
Subject Keywords:Economic growth, development, experimental economics, institutions, political economy
Issue or Number:539
Classification Code:JEL Classification Codes: O41, P16, C92
Record Number:CaltechAUTHORS:20110204-075405812
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Official Citation:Capra, C. M., Tanaka, T., Camerer, C. F., Feiler, L., Sovero, V. and Noussair, C. N. (2009), The Impact of Simple Institutions in Experimental Economies with Poverty Traps. The Economic Journal, 119: 977–1009. doi: 10.1111/j.1468-0297.2009.02262.x
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:21999
Deposited By: Tony Diaz
Deposited On:17 Mar 2011 21:08
Last Modified:09 Nov 2021 16:02

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