Abstract

http://ssrn.com/abstract=1801664
 
 

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Risk, Institutions and Growth: Why England and Not China?


Avner Greif


Stanford University - Department of Economics; Canadian Institute for Advanced Research (CIFAR)

Murat Iyigun


University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); Institute for the Study of Labor (IZA)

Diego Sasson


affiliation not provided to SSRN


IZA Discussion Paper No. 5598

Abstract:     
We analyze the role of risk-sharing institutions in transitions to modern economies. Transitions requires individual-level risk-taking in pursuing productivity-enhancing activities including using and developing new knowledge. Individual-level, idiosyncratic risk implies that distinct risk-sharing institutions - even those providing the same level of insurance - can lead to different growth trajectories if they differently motivate risk-taking. Historically, risk sharing institutions were selected based on their cultural and institutional compatibility and not their unforeseen growth implications. We simulate our growth model incorporating England's and China's distinct pre-modern risk-sharing institutions. The model predicts a transition in England and not China even with equal levels of risk sharing. Under the clan-based Chinese institution, the relatively risk-averse elders had more control over technological choices implying lower risk-taking. Focusing on non-market institutions expands on previous growth-theoretic models to highlight that transitions can transpire even in the absence of exogenous productivity shocks or time-dependent state variables. Recognizing the role of non-market institutions in the growth process bridges the view that transitions are due to luck and the view that transitions are inevitable. Transitions transpire when 'luck' creates the conditions under which economic agents find it beneficial to make the choices leading to positive rates of technological change. Luck came in the form of historical processes leading to risk-sharing institutions whose unintended consequences encouraged productivity-enhancing risk-taking.

Number of Pages in PDF File: 59

Keywords: institutions, risk, growth, development

JEL Classification: O10, O31, O43, N10

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Date posted: April 4, 2011  

Suggested Citation

Greif, Avner and Iyigun, Murat and Sasson, Diego, Risk, Institutions and Growth: Why England and Not China?. IZA Discussion Paper No. 5598. Available at SSRN: http://ssrn.com/abstract=1801664

Contact Information

Avner Greif (Contact Author)
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8936 (Phone)
Canadian Institute for Advanced Research (CIFAR) ( email )
180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada
Murat F. Iyigun
University of Colorado at Boulder - Department of Economics ( email )
Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)
Harvard University - Center for International Development (CID) ( email )
One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Diego Sasson
affiliation not provided to SSRN
Feedback to SSRN


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