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Competitive Rent Preservation, Reform Paralysis, and the Persistence of Underdevelopment

  • Raghuram G. Rajan

Initial inequality in endowments and opportunities, together with low average levels of endowments, can create constituencies in a society that combine to paralyze reforms, even though the status quo hurts them collectively. Each 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. Though the initial conditions may well be a legacy of the colonial past, persistence does not require the presence of coercive political institutions, perhaps one reason why underdevelopment has survived independence and democratization. Instead, the roots of underdevelopment may lie in the natural tendency towards rent preservation in a divided society.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12093.

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Date of creation: Mar 2006
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Handle: RePEc:nbr:nberwo:12093
Note: CF EFG LE
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