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Creator: Kocherlakota, Narayana Rao, 1963- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 288 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).
Palavra-chave: Technology Adoption, Development, Enforcement, and Inequality Sujeito: O11 - Macroeconomic Analyses of Economic Development, D42 - Market Structure, Pricing, and Design: Monopoly, and O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements