Exam 2 Notes - 1. Solow Residual 2. Explain New Development...

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1. Solow Residual 2. Explain New Development Economics The New Development Economics departs from the neoclassical growth model based on “fundamentals” to a modern growth theory, which focuses on market failures associated with incomplete markets and incomplete information. This was a much more micro oriented approach which also emphasized the importance of the economics of information, institutions and incentives. The modern theory of market failure focused on the incomplete information that created so many problems. With the presence of asymmetric information, adverse selection and moral hazard were more likely to take place. It also creates an inability of individuals to coordinate choices, which causes market failures and creates underdevelopment traps. The New Development Economics looked at development as no longer being a process of capital accumulation, but rather a process of organizational change. Instead of focusing on the neoclassical approach to capital accumulation, there was a new thinking
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This note was uploaded on 06/11/2008 for the course ECON 371 taught by Professor Vanderford during the Summer '08 term at University of Arizona- Tucson.

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Exam 2 Notes - 1. Solow Residual 2. Explain New Development...

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