Paper #212

Title:

Setting standards: Information accumulation in development

Authors:

Daron Acemoglu and Fabrizio Zilibotti

Date:

March 1997

Abstract:

We propose 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. Our 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, sectorial transformations

JEL codes:

D82, M13, O13, O14, O40

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Economic Growth, March 1999, vol4, 5-38

Download the paper in PDF format