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Title:The voracity effect: Comment PDF Logo
Authors:Strulik, Holger
Issue Date:2011
Series/Report no.:Discussion Paper, Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover 472
Abstract:In an influential article Tornell and Lane (1999) considered an economy populated by multiple powerful groups in which property rights in the formal sector of production are not protected. They obtained conditions under which the groups appropriate output from the formal sector in order to invest it in an informal sector in which productivity is lower and private property is protected. They also obtained conditions under which voracity occurs such that a permanent positive shock in the formal sector leads to lower growth. Here I show that not investing in the informal sector is a pareto-superior Nash equilibrium under the mild condition of an elasticity of intertemporal substitution in consumption smaller than unity. As a corollary, voracity disappears.
Subjects:Economic growth
common pool resources
Document Type:Working Paper
Appears in Collections:Diskussionspapiere, Wirtschaftswissenschaftliche Fakultät, Universität Hannover

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