Entry Restrictions, Corruption and Extortion in the Context of Transition
AbstractThis paper argues that even temporary barriers to entry present at the very beginning of transition may lead to permanent extortion development. Entry restrictions, if binding, lead to excess profits, which create an incentive to extort. The emergence of extortionists reduces the expected profit from production, making producers expect extortion in the future. If, after this adaptation of expectations, the government removes the barriers to entry, only a few new firms will enter the market. Hence, the total number of firms on the market is lower than it would have been with no barriers to entry. The low number of firms on the market allows each producer to earn relatively high pre- extortion profits, which reinforces the desire of racketeers to take part of their wealth. Consequently, part of the population is permanently diverted from production to rent-seeking activities, which may slow down economic growth, even in the long run.
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Bibliographic InfoPaper provided by EconWPA in its series Development and Comp Systems with number 0106003.
Length: 42 pages
Date of creation: 13 Jun 2001
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Corruption; extortion; transition;
Find related papers by JEL classification:
- P29 - Economic Systems - - Socialist Systems and Transition Economies - - - Other
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- H89 - Public Economics - - Miscellaneous Issues - - - Other
- J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-06-22 (All new papers)
- NEP-LAW-2001-06-22 (Law & Economics)
- NEP-REG-2001-06-22 (Regulation)
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.:
- Roland, G. & Verdier, T., 2000.
"Law Enforcement and Transition,"
DELTA Working Papers
2000-25, DELTA (Ecole normale supérieure).
- Roland, Gérard & Verdier, Thierry, 2000. "Law Enforcement and Transition," CEPR Discussion Papers 2501, C.E.P.R. Discussion Papers.
- Gerard Roland & Thierry Verdier, 1999. "Law Enforcement and Transition," William Davidson Institute Working Papers Series 262, William Davidson Institute at the University of Michigan.
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