Growth in Illyria: The Role of Meritocracy in the Accumulation of Human Capital

22 Pages Posted: 12 Mar 2016 Last revised: 6 Aug 2016

See all articles by Carmen Bevia

Carmen Bevia

Universidad de Alicante

Luis C. Corchón

Universidad Carlos III de Madrid - Department of Economics

Date Written: July 26, 2016

Abstract

In this paper we present a dynamic model of cooperative production with human capital accumulation. We assume CES preferences on consumption and leisure in each period. When agents do not care about future generations, sustained growth occurs if the elasticity of substitution between consumption and leisure is larger or equal than one. Meritocracy always has a positive effect on output, but when the elasticity of substitution is less than one, is only a level effect. When agents care about future generations, under Cobb-Douglas preferences in each period and some extra conditions, there is constant growth at a rate that is larger than the one when future generations do not count. For any discount rate between generations, there is a unique level of meritocracy for which efficiency is achieved.

Keywords: Cooperative Production, Growth, Meritocracy

JEL Classification: D2, D9, O4

Suggested Citation

Bevia, Carmen and Corchón Diaz, Luis Carlos, Growth in Illyria: The Role of Meritocracy in the Accumulation of Human Capital (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=2745327 or http://dx.doi.org/10.2139/ssrn.2745327

Carmen Bevia

Universidad de Alicante ( email )

Campus de San Vicente, sn
Alicante, 03690
Spain

Luis Carlos Corchón Diaz (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

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