Was Prometheus Unbound by Chance? Risk, Diversification, and Growth

  title={Was Prometheus Unbound by Chance? Risk, Diversification, and Growth},
  author={Daron Acemoglu and Fabrizio Zilibotti},
  journal={Journal of Political Economy},
  pages={709 - 751}
This paper offers a theory of development that links the degree of market incompleteness to capital accumulation and growth. At early stages of development, the presence projects limits the degree of risk spreading (diversification) that the economy can achieve. The desire to avoid highly risky investments slows down capital accumulation, and the inability to diversify idiosyncratic risk introduces a large amount of uncertainty in the growth process. The typical development pattern will consist… Expand
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