DP5840 Competition, Innovation and Growth with Limited Commitment

Author(s): Ramon Marimon, Vincenzo Quadrini
Publication Date: September 2006
Keyword(s): contract enforcement, economic growth, human capital
JEL(s): L14, O4
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5840

We study how barriers to competition - such as, restrictions to business start-up and strict enforcement of covenants or IPR - affect the investment in knowledge capital when contracts are not enforceable. These barriers lower the competition for human capital and reduce the incentive to accumulate knowledge. We show in a dynamic general equilibrium model that this mechanism has the potential to account for significant cross-country income inequality.