Sunday, October 04, 2009

Meet the new boss, same as the old boss

There is a very clever and interesting article in the inaugural issue of the AEJ: Macroeconomics by Raghuram Rajan (ungated version here) called "Rent Preservation and the Persistence of Underdevelopment" about why basic reforms are delayed in many countries, even those holding elections.

The core of his argument is that:

When citizens in a poor constrained society are very 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 towards rent preservation in a 

divided society.  



P.S. Dan Sutter and I took a crack at why reforms are delayed a while ago (paper is here).



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