Social capital decreases the depreciation of physical capital

What is it about?

It is about the way social capital contributes to decrease the depreciation of physical capital, meaning that the rules in presence in the economy prevents some of the physical capital to become obsolete (think of higher corruption is associated with lower expenditures on operations and maintenance of physical capital, which calls for a relationship between institutions and the depreciation of physical capital, exactly the link that we uncover). Then we characterize the (theoretical and quantitative) features of such an economy.

Featured Image

Why is it important?

It is the first time endogenous growth theory uncover the effect of some aspects of social infrastructure in protecting physical capital from being obsolete so fast. There are also two possible situations in which the economy is in equilibrium. When there are two different equilibria, one is characterized by a higher emphasis on final good production and high consumption while investing less in social infrastructure (or capital), and the other is characterized by lower allocation of human capital to the final good production and consumption and better institutional environment. There is thus a choice between present and future determined by allocation of human resources to build social infrastructure. It is also important because is one of the few applications of the Grobner Basis to the Economic Theory and the first to endogenous growth theory.