Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189426 
Year of Publication: 
2007
Series/Report no.: 
Queen's Economics Department Working Paper No. 1150
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
We study economies where improving the quality of institutions - modeled as improving contract enforcement - requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe enables us to formalize the hypothesis formulated by Engerman and Sokoloff (2002) that the initial concentration of human and physical capital can explain the divergence of different countries' institutional history.
Subjects: 
Enforcement as a Choice
Institutions
Inequality
Human and Physical Capital
JEL: 
D31
D52
O11
O43
Document Type: 
Working Paper

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