🔗 O-Ring Theory

🔗 Economics 🔗 Business 🔗 International development

The O-ring theory of economic development is a model of economic development put forward by Michael Kremer in 1993, which proposes that tasks of production must be executed proficiently together in order for any of them to be of high value. The key feature of this model is positive assortative matching, whereby people with similar skill levels work together.

The name comes from the 1986 Challenger shuttle disaster, a catastrophe caused by the failure of a single O-ring.

Kremer thinks that the O-ring development theory explains why rich countries produce more complicated products, have larger firms and much higher worker productivity than poor countries.