Economic Development Chapter 4

Front 1

Economic agent

Back 1

An economic actor, usually a firm, worker, consumer, or government official, that chooses actions so as to maximize an objective. P. 156

Front 2

Complementarity

Back 2

An action taken by one firm, worker, or organization that increases the incentives for other agents to take similar actions. Complementarities often involve investments whose return depends on other investments being made by other agents. P. 156

Front 3

Coordination failure

Back 3

A state of affairs in which the inability of agents to coordinate their behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off than in an alternative situation that is also an equilibrium. P. 156

Front 4

Big push

Back 4

A concerted, economy wide, and typically public policy led effort to initiate or accelerate economic development across a broad spectrum of new industries and skills. P. 157

Front 5

O-ring model

Back 5

An economic model in which production functions exhibit strong complementarities among inputs and which has broader implications for impediments to achieving economic development. P. 157

Front 6

Middle-income trap

Back 6

A condition in which an economy begins development to reach middle-income status but is chronically unable to progress to high-income status. Often related to low capacity for original innovation or for absorption of advanced technology, and may be compounded by high inequality. P. 157

Front 7

Underdevelopment trap

Back 7

A poverty trap at the regional or national level in which underdevelopment tends to perpetuate itself over itself. P. 157

Front 8

Deep intervention

Back 8

A government policy that can move the economy to a preferred equilibrium or even to a higher permanent rate of growth that can then be self-sustaining so that the policy need no longer be enforced because the better equilibrium will then prevail without further intervention. P. 158

Front 9

Congestion

Back 9

The opposite of a complementarity; an action taken by one agent that decreases the incentives for other agents to take similar actions. P. 158

Front 10

where-to-meet dilemma

Back 10

A situation in which all parties would be better off cooperating than competing but lack information about how to do so. If cooperation can be achieved, there is no subsequent incentive to defect or cheat. P. 159

Front 11

Prisoners' dilemma

Back 11

A situation in which all parties would be better off cooperating than competing but once cooperation has been achieved, each party would gain the most by cheating, provided that others stick to cooperative agreements, thus causing any agreement to unravel. P. 159

Front 12

Multiple equilibria

Back 12

A condition in which more than one equilibrium exists. These equilibria may sometimes be ranked, in the sense that one is preferred to another, but the unaided market will not move the economy to the preferred outcome. P. 159

Front 13

Pareto improvement

Back 13

A situation in which one or more persons may be made better off without making anyone worse off. P. 161

Front 14

Pecuniary externality

Back 14

A positive or negative spillover effect on an agent's costs or revenues. P. 164

Front 15

Technological externality

Back 15

A positive or negative spillover effect on a firm's production function through some means other than market exchange. P. 170

Front 16

Agency costs

Back 16

Costs of monitoring managers and other employees and of designing and implementing schemes to ensure compliance or provide incentives to follow the wishes of the employer. P. 171

Front 17

Asymmetric information

Back 17

A situation in which one party to a potential transaction (often a buyer, seller, lender, or borrower) has more information than another party. P. 171

Front 18

Linkages

Back 18

Connections between firms based on sales. A backward linkage is one in which a firm buys a good from another firm to use as an input; a forward linkage is one in which a firm sells to another firm. Such linkages are especially significant for industrialization strategy when one or more of the industries (product areas) involved have increasing returns to scale that a larger market takes advantage of. P. 173

Front 19

Poverty trap

Back 19

A bad equilibrium for a family, community, or nation, involving a vicious circle in which poverty and underdevelopment lead to more poverty and underdevelopment, often from one generation to the next. P. 175

Front 20

O-ring production function

Back 20

A production function with strong complementarities among inputs, based on the products of the input qualities. P. 176

Front 21

Information externality

Back 21

The spillover of information, such as knowledge of a production process, from one agent to another, without intermediation of a market transaction; reflects the public good characteristics information (and susceptibility to free-riding). It is neither excludable from other uses, nor non-rival (one agent's use of information does not prevent others from using it). P. 181

Front 22

Growth diagnostics

Back 22

A decision tree framework for identifying a county's most binding constraints on economic growth. P. 182

Front 23

Social returns

Back 23

The profitability of an investment in which both costs and benefits are accounted for from the perspective of the society as a whole. P. 182