Bayazid Mardokhi, Rikardo Hasman, Dani Radrik,
Volume 7, Issue 6 (3-2003)
Abstract
In the presence of uncertainty about what a country can be good at producing, there can be great social value to discovering costs of domestic activities, because such discoveries can be easily imitated. Two failures of the laissez – faire outcome are being highlighted: there is too little investment and entrepreneurship ex ante, and too much production diversi-fication ex post. Optimal policy consists of counteracting these distortions: to encourage investment in the modern sector ex ante, but to rationalize production ex post. Some informal evidence on the building blocks of the model is provided.
