Entry Restrictions, Corruption and Extortion in the Context of Transition
This 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.
|Date of creation:||Apr 2001|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 882, Politickych veznu 7, 111 21 Praha 1|
Phone: (+420) 224 005 123
Fax: (+420) 224 005 333
Web page: http://www.cerge-ei.cz
More information through EDIRC
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.
- Peter Diamond & Drew Fudenberg, 1987.
"Rational Expectations Business Cycles in Search Equilibrium,"
465, Massachusetts Institute of Technology (MIT), Department of Economics.
- Diamond, Peter & Fudenberg, Drew, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 606-19, June.
- Fudenberg, Drew & Diamond, Peter, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Scholarly Articles 3374509, Harvard University Department of Economics.
- Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
- Peter Howitt & R. Preston McAfee, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 261-277.
When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp172. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jana Koudelkova)
If references are entirely missing, you can add them using this form.