Building Blocks for Barriers to Riches

Posted: 13 Aug 2008

See all articles by Narayana Kocherlakota

Narayana Kocherlakota

University of Minnesota - Twin Cities - Department of Economics

Date Written: March 2001

Abstract

Total factor productivity (TFP) differs greatly across countries. In this paper, I provide a novel rationalization for these differences. I consider two environments, one in which enforcement is full and the other in which enforcement is limited. In both settings, manufactured goods can be produced using a high-TFP technology or a low-TFP technology; there is a fixed cost associated with adoption of the former. I suppose that the fixed cost is sufficiently small that adoption takes place in a symmetric Pareto optimum in the limited-enforcement setting. Under this condition, I prove two results. First, adoption takes place in all Pareto optima in the full-enforcement setting. Second, adoption may not take place in a Pareto optimum in the limited-enforcement setting, if the division of social surplus is sufficiently unequal. I conclude that limited enforcement and high inequality interact to create particularly strong barriers to riches (in the language of Parente and Prescott (1999, 2000).

Keywords: Development, Technology Adoption, Enforcement, Inequality

JEL Classification: O11, O17, D42

Suggested Citation

Kocherlakota, Narayana, Building Blocks for Barriers to Riches (March 2001). Available at SSRN: https://ssrn.com/abstract=1221461

Narayana Kocherlakota (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5318 (Phone)
612-624-0209 (Fax)

HOME PAGE: http://www.econ.umn.edu/~nkocher/

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