EC207 Lecture Notes - Lecture 5: Autarky, Capital Market, Human Capital
Document Summary
Conditions for multiple equilibria: -inter temporal effects -urbanization effects - infrastructure effects. Equilibria are: stable: function crosses the 45 degree line from above unstable: function crosses the 45 degree line from below. The big push model: (see slide 42 diagram) Two sectors: traditional labour market receives wage=1 and modern sector wage> 1. Challenge to intimate industrialization in a subsistence economy. Potential externalities from firm manufacturing firm for followers. No incentive to be the first mover -circular causation coordination failure. Cost of monitoring managers -communication failures -limits to knowledge. Production is modelled with strong complementarities among inputs. Proposes that tasks of production must be executed proficiently together in order for any of them to be high value. Key feature of model is positive assortive matching. Workers performing the same task earn higher wages in a high skill firm/ country than low. Workers will consider human capital investments in light of similar investments by those around them.
