Do, Quy-Toan
Institutional Trap Do, Quy-Toan [electronic resource] / Do, Quy-Toan - Washington, D.C., The World Bank, 2004 - 1 online resource (35 p.) - Policy research working papers. World Bank e-Library. .
The author studies the persistence of inequality and inefficient governance in a physical capital accumulation model with perfect information, missing credit markets, and endogenous barriers to entry. When access to investment opportunities is regulated, rent-seeking entrepreneurs form coalitions of potentially varying size to bribe a regulator to restrict entry. Small coalitions run short of resources, while large coalitions suffer more severe free-rider problems. The distribution of wealth thus determines the equilibrium coalition structure of the economy and consequently the level of regulatory capture. A dynamic analysis supports the persistence of inefficiencies in the long run. Initial conditions determine whether the economy converges to a steady state characterized by efficient governance and low levels of inequality, or a path toward an institutional trap where regulatory capture and wealth inequality reinforce each other. This paper-a product of the Poverty Team, Development Research Group-is part of a larger effort in the group to understand the determinants of institutions.
10.1596/1813-9450-3291
Agents
Bargaining
Consensus
Corruption
Entry
GDP
Gi
Index
Institutional Change
Iru
Licensing
Ms
Nature
Production
Roads and Highways
Supply
Transport
Vd
Vdu
Wealth
Wealth Constraints
Zdv
Institutional Trap Do, Quy-Toan [electronic resource] / Do, Quy-Toan - Washington, D.C., The World Bank, 2004 - 1 online resource (35 p.) - Policy research working papers. World Bank e-Library. .
The author studies the persistence of inequality and inefficient governance in a physical capital accumulation model with perfect information, missing credit markets, and endogenous barriers to entry. When access to investment opportunities is regulated, rent-seeking entrepreneurs form coalitions of potentially varying size to bribe a regulator to restrict entry. Small coalitions run short of resources, while large coalitions suffer more severe free-rider problems. The distribution of wealth thus determines the equilibrium coalition structure of the economy and consequently the level of regulatory capture. A dynamic analysis supports the persistence of inefficiencies in the long run. Initial conditions determine whether the economy converges to a steady state characterized by efficient governance and low levels of inequality, or a path toward an institutional trap where regulatory capture and wealth inequality reinforce each other. This paper-a product of the Poverty Team, Development Research Group-is part of a larger effort in the group to understand the determinants of institutions.
10.1596/1813-9450-3291
Agents
Bargaining
Consensus
Corruption
Entry
GDP
Gi
Index
Institutional Change
Iru
Licensing
Ms
Nature
Production
Roads and Highways
Supply
Transport
Vd
Vdu
Wealth
Wealth Constraints
Zdv