Competitive Rent Preservation, Reform Paralysis, and the Persistence of Underdevelopment

Raghuram G. Rajan

No 12093, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Initial inequality in endowments and opportunities, together with low average levels of endowments, can create constituencies in a society that combine to paralyze reforms, even though the status quo hurts them collectively. Each constituency prefers reforms that expand its opportunities, but in an unequal society, this will typically hurt another constituency’s rents. Competitive rent preservation ensures no comprehensive reform path may command broad support. Though the initial conditions may well be a legacy of the colonial past, persistence does not require the presence of coercive political institutions, perhaps one reason why underdevelopment has survived independence and democratization. Instead, the roots of underdevelopment may lie in the natural tendency towards rent preservation in a divided society.

JEL-codes: O1 O15 P5 I2 K0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-edu, nep-law and nep-pol
Date: 2006-03
Note: CF EFG LE
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