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Policy Design and Rent Seeking: Targeted versus Broad Based Intervention

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Author Info
Kjetil Bjorvatn
Nicola D. Coniglio

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Abstract

The present paper analyzes how policy intervention should be designed so as to create industrialization. We focus on whether intervention should be targeted, promoting investment in specific firms or industries, or broad based, increasing the profitability of investment in general. Our main argument is that in areas with weak institutions, broad based policies should be chosen, while in areas with strong institutions, targeted policies may be less costly in moving the economy out of a poverty trap. The targeted policy is attractive because it internalized a demand externality, but is also more exposed to rent seeking, since "picking a winner" involves a greater measure of discretion in policy formulation and implementation. The broad based policy does not discriminate between industries and is, hence, less likely to be captured by rent seekers, but also does not take advantage of the demand externality. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2006.00331.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Development Economics.

Volume (Year): 10 (2006)
Issue (Month): 4 (November)
Pages: 577-585
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Handle: RePEc:bla:rdevec:v:10:y:2006:i:4:p:577-585

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  1. Kjetil Bjorvatn & Nicola D. Coniglio, 2007. "How should industrial policy be designed in developing countries?," series 0014, Dipartimento di Scienze Economiche - Università di Bari, revised Feb 2007. [Downloadable!]
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This page was last updated on 2009-11-22.

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