Institutions and the East Asian miracle : asymmetric information, rent - seeking, and the deliberation council
AbstractNorth (1984) argues that it is not the cost of transport but the cost of transactions that prevents economies from realizing well-being - and that institutions matter because they affect the costs of transactions. The authors analyze the role of the deliberation council - an institution common to most of the high performing Asian economies - in reducing the crippling effect of rent-seeking. A deliberation council is a consultative committee whose members include high-ranking government officials and representatives from the private sector - usually from industry (especially high business) and academia, sometimes from consumer groups and labor. Councils can be organized by industry or sector (as with the Industrial Structure Council of Japan) or by theme or function (as with Thailand's Joint Public Sector-Private Sector Consultative Committee). Generally, the deliberation council has a quasi-legislative authority, and policies cannot be introduced or changed without its recommendation and approval. Unlike a legislative committee, its private sector reprensentatives are not elected but are chosen (by industry or labor, for example, and not necessarily through voting) and its government officials generally become representatives by virtue of appointment to their present position. The authors construct a two-stage incomplete information game model with two identical firms and various links to real-world processes. It is a highly simplified model that focuses on the awarding of government contracts. They use the model to gain insight into the problem of rent-seeking in developing countries and to test their hypothesis. Rent-seeking occurs partly because people are uncertain about the intentions and plans of potential competitors - they engage in rent-seeking for fear that not doing so might give their competitors a huge advantage. To the extent that the council generates an exchange of information, this uncertainty is reduced, so one would expect less rent-seeking. Such exchanges reduce information (transaction) costs and thus improve efficiency. The model confirms that firms are better off it they can communicate their true valuations to competitors than when they cannot. The deliberation council induces participation to reveal true information, and the model shows that the payoffs are better with communication than without.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1321.
Date of creation: 31 Jul 1994
Date of revision:
Health Economics&Finance; Economic Theory&Research; Environmental Economics&Policies; ICT Policy and Strategies; Health Monitoring&Evaluation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul R. Milgrom & Douglass C. North & Barry R. Weingast, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 2(1), pages 1-23, 03.
- Deepak Lal, 1993. "Poverty and Development," UCLA Economics Working Papers, UCLA Department of Economics 707, UCLA Department of Economics.
- 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, Cambridge University Press, vol. 49(04), pages 803-832, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.