Competition, Innovation and Growth with Limited Commitment
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.
We would like to thank Francesco Caselli, Hugo Hopenhayn, Boyan Jovanovic, Narayana Kocherlachota, Omar Licandro, Michele Boldrin, Stephen Parente and seminar participants at CEMFI, CEPR Macroeconomic Symposium in Cyprus, London School of Economics, ITAM, Monetary Conference at Banco of Portugal, NBER Summer Institute, SED meeting in Budapest, Universitat Pompeu Fabra, University of Porto, University of Southern California, University of Toronto and World Congress in London. Marimon acknowledges support from Ente Luigi Einaudi, Fundacion BBVA and Ministerio de Educacion y Ciencia. Quadrini acknowledges support from the National Science Foundation.