The Impact of Simple Institutions in Experimental Economies with Poverty Traps

33 Pages Posted: 16 Jun 2009

See all articles by C. Monica Capra

C. Monica Capra

Claremont Graduate University

Tomomi Tanaka

The World Bank

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Lauren Feiler

affiliation not provided to SSRN

Veronica Sovero

California Institute of Technology

Charles N. Noussair

Tilburg University

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Abstract

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.

Suggested Citation

Capra, C. Monica and Tanaka, Tomomi and Camerer, Colin F. and Feiler, Lauren and Sovero, Veronica and Noussair, Charles N., The Impact of Simple Institutions in Experimental Economies with Poverty Traps. Economic Journal, Vol. 119, No. 539, pp. 977-1009, July 2009, Available at SSRN: https://ssrn.com/abstract=1418179 or http://dx.doi.org/10.1111/j.1468-0297.2009.02262.x

C. Monica Capra

Claremont Graduate University ( email )

170 E. Tenth Street
Claremont, CA 91711
United States

Tomomi Tanaka (Contact Author)

The World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Colin F. Camerer

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Lauren Feiler

affiliation not provided to SSRN

No Address Available

Veronica Sovero

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Charles N. Noussair

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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