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Wages, Profits And Capital Flight

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  • Andrés Velasco
  • Aarón Tornell

Abstract

We model capital flight as the outcome of a non‐cooperative differential game between workers (who control the wage share) and capitalists (who control investment at home and abroad). There are three equilibria for such a game. Along the interior equilibrium, the domestic economy becomes “decapitalized” as investors build up their holdings of foreign assets, in a situation reminiscent of the experience of several developing countries.

Suggested Citation

  • Andrés Velasco & Aarón Tornell, 1991. "Wages, Profits And Capital Flight," Economics and Politics, Wiley Blackwell, vol. 3(3), pages 219-237, November.
    • Handle: RePEc:bla:ecopol:v:3:y:1991:i:3:p:219-237
    DOI: 10.1111/j.1468-0343.1991.tb00048.x
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    References listed on IDEAS

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    1. Benhabib, Jess & Radner, Roy, 1992. "The Joint Exploitation of a Productive Asset: A Game-Theoretic Approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 155-190, April.
    2. Rudiger Dornbusch & Juan Carlos de Pablo, 1987. "Argentina: Debt and Macroeconomic Instability," NBER Working Papers 2378, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Daniele Checchi, 1996. "Capital Controls And Conflict Of Interests," Economics and Politics, Wiley Blackwell, vol. 8(1), pages 33-50, March.

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