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http://ssrn.com/abstract=2132939
 
 

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Can't We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World


Daron Acemoglu


Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James A. Robinson


Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Thierry Verdier


Paris School of Economics (PSE); Delta - Ecole Normale Superieure (ENS); Centre for Economic Policy Research (CEPR)

August 20, 2012

MIT Department of Economics Working Paper No. 12-22

Abstract:     
Because of their more limited inequality and more comprehensive social welfare systems, many perceive average welfare to be higher in Scandinavian societies than in the United States. Why then does the United States not adopt Scandinavian-style institutions? More generally, in an interdependent world, would we expect all countries to adopt the same institutions? To provide theoretical answers to this question, we develop a simple model of economic growth in a world in which all countries benefit and potentially contribute to advances in the world technology frontier. A greater gap of incomes between successful and unsuccessful entrepreneurs (thus greater inequality) increases entrepreneurial effort and hence a country’s contribution to the world technology frontier. We show that, under plausible assumptions, the world equilibrium is asymmetric: some countries will opt for a type of “cutthroat” capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free-ride on the cutthroat incentives of the leaders and choose a more cuddly form of capitalism. Paradoxically, those with cuddly reward structures, though poorer, may have higher welfare than cutthroat capitalists; but in the world equilibrium, it is not a best response for the cutthroat capitalists to switch to a more cuddly form of capitalism. We also show that domestic constraints from social democratic parties or unions may be beneficial for a country because they prevent cutthroat capitalism domestically, instead inducing other countries to play this role.

Number of Pages in PDF File: 49

Keywords: cutthroat capitalism, economic growth, inequality, innovation, interdependences, technological change

JEL Classification: O40, O43, O33, P10, P16

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Date posted: August 21, 2012  

Suggested Citation

Acemoglu, Daron and Robinson, James A. and Verdier, Thierry, Can't We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World (August 20, 2012). MIT Department of Economics Working Paper No. 12-22. Available at SSRN: http://ssrn.com/abstract=2132939 or http://dx.doi.org/10.2139/ssrn.2132939

Contact Information

Daron Acemoglu (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-380b
Cambridge, MA 02142
United States
617-253-1927 (Phone)
617-253-1330 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James A. Robinson
Harvard University - Department of Government ( email )
1737 Cambridge Street
Cambridge, MA 02138
United States
617-496-2839 (Phone)
617-495-8292 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Thierry Verdier
Paris School of Economics (PSE) ( email )
48 Boulevard Jourdan
Paris, 75014
France
Delta - Ecole Normale Superieure (ENS) ( email )
48, Boulevard Jourdan
75014 Paris
France
+33 1 4313 6308 (Phone)
+33 1 4313 6310 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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