The Impact of Simple Institutions in Experimental Economies with Poverty Traps

C. Monica Capra, Tomomi Tanaka (), ColinF. Camerer, Lauren Feiler, Veronica Sovero and Charles Noussair

Economic Journal, 2009, vol. 119, issue 539, 977-1009

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. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2009
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Journal Article: The Impact of Simple Institutions in Experimental Economies with Poverty Traps (2009)
Working Paper: The Impact of Simple Institutions in Experimental Economies with Poverty Traps (2005)
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