Resource title

Coordinating development: can income-based incentive schemes eliminate pareto inferior equilibria?

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Resource description

Individuals' inability to coordinate investment may significantly constrain economic development. In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high investment outcome. A general property of this game is the presence of a crossover investment point at which an individual's incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government’s knowledge of this crossover point can prevent unique implementation of the high investment outcome. We conclude that informational requirements are likely to severely limit a government's ability to use income-based incentive schemes as a coordination device.

Resource author

Philip Bond, Rohini Pande

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26967

Resource license

Adapt according to the presented license agreement and reference the original author.