Competition, Innovation and Growth with Limited Commitment


We study how barriers to business start-up affect the investment in knowledge capital when contracts are not enforceable. Barriers to business start-up lower the competition for knowledge capital and, in absence of commitment, reduce the incentive to accumulate knowledge. As a result, countries with large barriers experience lower income and growth. Our results are consistent with cross-country evidence showing that the cost of business start-up is negatively correlated with the level and growth of income.

Published as: Competition, Human Capital and Income Inequality with Limited Commitment in Journal of Economic Theory , Vol. 146, No. 3, 976--1008, January, 2011