Predation, Institutional Quality and Economic Growth.

Sajawal Khan, Idrees Khawaja

Abstract


This study develops a theoretical a model to examine the
impact of predation on aggregate output and aggregate consumption. Using
game theoretic framework we show that predation, reduces aggregate
output and per capita consumption. Predation occurs when some agents
enjoy comparative advantage in predation. Given predation under
comparative advantage of some agents, a larger part of the aggregate
output accrues to the predators. We also demonstrate that given
inequality of endowments, the poorly endowed enjoys an incentive to
predate. The payoff of the well endowed from production and predation is
the same. Therefore the well endowed has no incentive to predate. If the
well endowed still predates this would be owed to his comparative
advantage in predation rather than the inequality per se. Large
endowments are only one of the numerous sources that afford such
comparative advantage. Good institutions like rule of law and effective
government tame this comparative advantage. It is due to this kind of
taming, that despite significant inequality in some economies, the level
of predation observed is relatively low. Institutional quality thus
determines the level of predation. We also show that redistribution from
well endowed to poorly endowed will not only increase per capita
consumption but will also be a ‗Pareto improvement‘. JEL classification:
D03, O43, P14 Keywords: Predation, Institutions, Growth

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DOI: https://doi.org/10.30541/v50i4IIpp.809-820

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