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Rent Preservation and the Persistence of Underdevelopment

Author

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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)

Suggested Citation

  • Raghuram G. Rajan, 2009. "Rent Preservation and the Persistence of Underdevelopment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 178-218, January.
  • 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 listed on IDEAS

    as
    1. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
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    6. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926, January.
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    8. 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.
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    Citations

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    Cited by:

    1. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    2. 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.
    3. Raghuram G. Rajan & Rodney Ramcharan, 2011. "Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century," Journal of Finance, American Finance Association, vol. 66(6), pages 1895-1931, December.
    4. Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
    5. Khemani, Stuti & Walton, Michael & Devarajan, Shantayanan, 2011. "Civil Society, Public Action and Accountability in Africa," Scholarly Articles 5131503, Harvard Kennedy School of Government.
    6. Nauro Campos & Fabrizio Coricelli, 2010. "Financial Liberalization, Elite Heterogeneity and Political Reform," Working Papers halshs-00967428, HAL.
    7. Nauro Campos & Fabrizio Coricelli, 2010. "Financial Liberalization, Elite Heterogeneity and Political Reform," PSE - G-MOND WORKING PAPERS halshs-00967428, HAL.
    8. Oded, Galor, 2011. "Inequality, Human Capital Formation, and the Process of Development," Handbook of the Economics of Education, Elsevier.
    9. Campos, Nauro F & Coricelli, Fabrizio, 2009. "Financial liberalization and democracy: The role of reform reversals," CEPR Discussion Papers 7393, C.E.P.R. Discussion Papers.
    10. Jha Saumitra, 2013. "Analyzing political risks in developing countries: a practical framework for project managers," Business and Politics, De Gruyter, vol. 15(1), pages 117-136, April.
    11. George Economides & Apostolis Philippopoulos & Petros Varthalitis, 2015. "Incentives to Work and Performance in the Public Sector," CESifo Working Paper Series 5193, CESifo Group Munich.
    12. Enrico Perotti, 2013. "The Political Economy of Finance," Tinbergen Institute Discussion Papers 13-034/IV/DSF53, Tinbergen Institute.
    13. repec:hal:pseose:halshs-00967428 is not listed on IDEAS
    14. Martin Ravallion, 2013. "The Idea of Antipoverty Policy," NBER Working Papers 19210, National Bureau of Economic Research, Inc.
    15. Latika Chaudhary & Manuj Garg, 2015. "Does history matter? Colonial education investments in India," Economic History Review, Economic History Society, vol. 68(3), pages 937-961, August.
    16. repec:bla:etrans:v:25:y:2017:i:2:p:351-373 is not listed on IDEAS
    17. repec:hal:cesptp:halshs-00967428 is not listed on IDEAS
    18. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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