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Rent Preservation and the Persistence of Underdevelopment

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  • Raghuram G. Rajan

Abstract

When citizens in a poor constrained society are unequally endowed, they are likely to find it hard to agree on reforms, even though the status quo hurts them collectively. Each citizen group or 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. The roots of underdevelopment may therefore lie in the natural tendency toward rent preservation in a divided society. (JEL D72, O10, O17)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.178
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (January)
Pages: 178-218

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Handle: RePEc:aea:aejmac:v:1:y:2009:i:1:p:178-218

Note: DOI: 10.1257/mac.1.1.178
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References

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  1. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
  2. Avinash Dixit & John Londregan, 1998. "Ideology, Tactics, And Efficiency In Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 497-529, May.
  3. Karla Hoff, 2003. "Paths of Institutional Development: A View from Economic History," World Bank Research Observer, World Bank Group, vol. 18(2), pages 205-226.
  4. Abhijit Banerjee & Lakshmi Iyer, 2005. "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," American Economic Review, American Economic Association, vol. 95(4), pages 1190-1213, September.
  5. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  6. Hans P. Binswanger & Klaus Deininger, 1997. "Explaining Agricultural and Agrarian Policies in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 1958-2005, December.
  7. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926, December.
  8. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number marshall1890.
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Cited by:
  1. Campos, Nauro F & Coricelli, Fabrizio, 2009. "Financial Liberalization and Democracy: The Role of Reform Reversals," IZA Discussion Papers 4338, Institute for the Study of Labor (IZA).
  2. Gall, Thomas & Masella, Paolo, 2011. "Markets and Jungles," Proceedings of the German Development Economics Conference, Berlin 2011 30, Verein für Socialpolitik, Research Committee Development Economics.
  3. Andreas Madestam, 2009. "Informal Finance: A Theory of Moneylenders," Working Papers 2009.69, Fondazione Eni Enrico Mattei.
  4. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
  5. Devarajan, Shantayanan & Khemani, Stuti & Walton, Michael, 2011. "Civil Society, Public Action and Accountability in Africa," Working Paper Series rwp11-036, Harvard University, John F. Kennedy School of Government.
  6. Chaudhary, Latika & Rubin, Jared, 2011. "Reading, writing, and religion: Institutions and human capital formation," Journal of Comparative Economics, Elsevier, vol. 39(1), pages 17-33, March.
  7. Raghuram G. Rajan & Rodney Ramcharan, 2009. "Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century," NBER Working Papers 15083, National Bureau of Economic Research, Inc.
  8. Oded Galor, 2011. "Inequality, Human Capital Formation and the Process of Development," Working Papers 2011-7, Brown University, Department of Economics.
  9. repec:hal:cesptp:halshs-00967428 is not listed on IDEAS
  10. Enrico Perotti, 2013. "The Political Economy of Finance," Tinbergen Institute Discussion Papers 13-034/IV/DSF53, Tinbergen Institute.

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