Imperfect information, Bayesian learning, and capital accumulation

This paper examines the consequences of informational imperfections for economic growth in an overlapping generations model in which agents learn the technological parameters in a Bayesian fashion. Under mild sufficient conditions, beliefs converge to the true value of the technological parameters. Nevertheless, even short-lived informational imperfections could have lasting effects, as they alter the long-run equilibrium levels of the capital stock. Therefore, learning dynamics may explain some of the observed differences in the performance of countries with otherwise similar economic characteristics.