Lecture 4
Contemporary
Models of
Development and
Underdevelopment
重难点
• 大推动理论
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3.1 Underdevelopment as a
Coordination Failure
• A newer school of thought on problems of
economic development
• Coordination failures occur when agents’
inability to coordinate their actions leads to
an outcome that makes all agents worse off.
• This can occur when actions are
complementary, i.e.,
• Actions taken by one agent reinforces
incentives for others to take similar actions
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3.2 Multiple Equilibria: A
Diagrammatic Approach
• Often, these models can be diagrammed
by graphing an S-shaped function and the
45º line
• Equilibria are
– Stable: function crosses the 45º line from
above
– Unstable: function crosses the 45º line from
below
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Figure 4.1 Multiple Equilibria
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3.3 Starting Economic Development:
The Big Push
• If growth can be sustained for a
substantial time, say, it is much more
unusual for economic development to later
get off track for long.
• It is very difficult to get modern economic
growth under way in the first place and
much easier to maintain it once a track
record has been established. Why?
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3.3 Starting Economic Development:
The Big Push
• Many development economists have concluded
that several market failures work to make
economic development difficult to initiate,
notably pecuniary externalities, which are
spillover effects on costs or revenues.
• coordination failures .Rosenstein-Rodan big
push:The profitability of one factory depends
on whether another one opens, which in turn
depends on its own potential profitability, and
that in turn depends on the profitability of still
other factories.
• Sometimes market failures lead to a need for
public policy intervention
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3.3 Starting Economic Development:
The Big Push
• The Big Push: 6 assumptions
– One factor of production: a fixed total
supply, L
– Two sectors :workers in the traditional
sector receive a wage of 1; Workers in the
modern sector receive a wage W >1.
– Same production function for each sector:N
types of products; in the traditional sector,
one worker produces one unit of output
QT=LT; In the modern sector, QM=1/c(LMF),and labor input LM=F+c*QM, Y=QT+QM
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3.3 Starting Economic Development:
The Big Push
– Consumers spend an equal amount on
each good.
– Closed economy
– Perfect competition with traditional firms
operating, limit pricing monopolist with a
modern firm operating: The monopolist
will also charge a price of 1 if it decides
to enter the market. Because the
monopolist charges the same price, it will
monopolize this particular market if
it enters.
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Figure 4.2 The Big Push
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3.3 Starting Economic Development:
The Big Push
• Conditions for Multiple Equilibria
• A big push may also be necessary
when there are:
–Intertemporal effects
–Urbanization effects
–Infrastructure effects
–Training effects
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