Working Paper: CEPR ID: DP1641
Authors: Daron Acemoglu; Fabrizio Zilibotti
Abstract: This paper proposes a model in which economic relations and institutions in advanced and less-developed economies differ as these societies have access to different amounts of information. This lack of information makes it hard to give the right incentives to managers and entrepreneurs. We argue that differences in the amount of information arise because of the differences in the scale of activities in rich and poor economies; namely, there is too little repetition of similar activities in poor economies, thus insufficient information to set the appropriate standards for firm performance. The model predicts a number of institutional and structural transformations as the economy accumulates capital and information.
Keywords: information; development; agency costs; incentives; relative performance evaluation; risk sharing; sectoral transformations
JEL Codes: D82; M13; O13; O14; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital accumulation (E22) | Resource allocation (D45) |
| Resource allocation (D45) | Information accumulation (D83) |
| Information accumulation (D83) | Principal-agent relations (D82) |
| Principal-agent relations (D82) | Productivity (O49) |
| Capital accumulation (E22) | Information accumulation (D83) |
| Information accumulation (D83) | Managerial incentives (M52) |
| Managerial incentives (M52) | Productivity (O49) |
| Capital scarcity (D24) | Information insufficiency (D80) |
| Information insufficiency (D80) | Managerial incentives (M52) |
| Information accumulation (D83) | Division of labor (L23) |
| Division of labor (L23) | Production techniques (L23) |
| Urbanization (R11) | Effectiveness of informal monitoring institutions (O17) |