EXTERNALITIES AND INFORMATION ASYMMETRY IN A MODEL OF GROWTH

Endogenous growth models underline the impact of externalities. They result in a decentralized equilibrium rate of growth which is not socially efficient. The Cease theorem states that a necessary condition for such an inefficiency is the positivity of transaction costs which prevent the agents from contracting on the gains that could be realized. The model taken up in the paper represents the coordination issues in an endogenous growth model with externalities as a repeated prisoners dilemma. The level of transaction costs (examplified by information asymmetry), the number of agents involved in the interaction and the repeated character of the interaction determine the equilibrium growth rate that can be reached by the system. In that sense institutions, that shape the previous features, help explaining the diversity of growth rates in space and time.