Working Paper: CEPR ID: DP5840
Authors: Ramon Marimon; Vincenzo Quadrini
Abstract: 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.
Keywords: Contract Enforcement; Economic Growth; Human Capital
JEL Codes: L14; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Barriers to competition (L13) | Accumulation of knowledge capital (E22) |
| Accumulation of knowledge capital (E22) | Income levels (D31) |
| Barriers to competition (L13) | Competition for human capital (J24) |
| Competition for human capital (J24) | Accumulation of knowledge capital (E22) |
| Barriers to competition (L13) | Incentive for innovators to accumulate knowledge (O36) |
| Lack of commitment from investors and innovators (O36) | Lower investment in knowledge capital (D29) |
| Lower barriers to entry (L17) | Innovation (O35) |
| Lower barriers to entry (L17) | Income levels (D31) |