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Policy Design and Rent Seeking: Targeted versus Broad Based Intervention

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  • Kjetil Bjorvatn
  • Nicola D. Coniglio

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.

Suggested Citation

  • Kjetil Bjorvatn & Nicola D. Coniglio, 2006. "Policy Design and Rent Seeking: Targeted versus Broad Based Intervention," Review of Development Economics, Wiley Blackwell, vol. 10(4), pages 577-585, November.
  • Handle: RePEc:bla:rdevec:v:10:y:2006:i:4:p:577-585
    DOI: 10.1111/j.1467-9361.2006.00331.x
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    File URL: https://doi.org/10.1111/j.1467-9361.2006.00331.x
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    Cited by:

    1. Wong, Sam, 2012. "Overcoming obstacles against effective solar lighting interventions in South Asia," Energy Policy, Elsevier, vol. 40(C), pages 110-120.
    2. Forte, Francesco & Magazzino, Cosimo & Mantovani, Michela, 2010. "On the failure of European planning for less developed regions. The case of Calabria," MPRA Paper 25527, University Library of Munich, Germany.
    3. Bjorvatn, Kjetil & Coniglio, Nicola Daniele, 2012. "Big push or big failure? On the effectiveness of industrialization policies for economic development," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 129-141.
    4. Kjetil Bjorvatn & Nicola D. Coniglio, 2007. "On the importance of openness for industrial policy design in developing countries," SERIES 0014, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2007.

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