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Learning to Stand in Lines: A Prerequisite for Economic Development?

Krishna B. Kumar & John G. Matsusaka and Marshall School of Business Usc
Authors registered in the RePEc Author Service: John G. Matsusaka () and Krishna Kumar ()

No 189, Econometric Society 2004 North American Winter Meetings from Econometric Society

Abstract: In this paper, we formalize the idea of human capital as the ability to follow and enforce the rules necessary for orderly conduct of economic transactions. People in the US and other developed countries stand in lines while waiting for the bus, etc., while in many developing countries lines quickly dissolve into crowding. Moreover, children in the US are taught to stand in lines, while such training is infrequent in poorer countries. Motivated by these observations, we use “standing in lines” as a metaphor for respecting the property rights of the person ahead in the line to transact first, and study the dynamic transmission of this trait. We first develop a static game in which economic exchange can be conducted in “markets” or “villages.” The human capital suitable for market transactions among anonymous agents (knowledge of the court system for enforcement) is different from the one for village transactions among known individuals (ability to work with informal social networks). We characterize the payoffs to these capitals. We embed them in a dynamic model, in which parents can choose to send their children to schools to acquire standing-in-line capital, but at a loss to household production and a lower chance of acquiring family capital. If the market technology is not very productive, in the only steady state the entire economy transacts in villages. When the market technology becomes sufficiently productive, only countries that have the right institutions (e.g. compulsory education, juvenile delinquency laws) can transit to a developed steady state in which there is a positive fraction of market transactions

Keywords: Human and civic capital; Dynamic heterogeneous-agent models; economic development (search for similar items in EconPapers)
JEL-codes: E10 I20 O11 (search for similar items in EconPapers)
Date: 2004-08-11
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