Endogenous Institutional Change and Privileged Groups

Since the recent advances in the institutional perspective of economic development, there is considerable increase in the literature on the evolution of institutions. In this study, while employing the game theoretic approach, we explore the rent-seeking fundamentals of institutions. We model the manner in which the rent-seeking behaviour of state actors results in inefficiency of the institutional framework. The main focus is on the rents provided by the availability of natural resources wealth, foreign aid or corruption potential. By originating a framework where rulers, agents of the state, and citizens act endogenously, we show that the rents from these resources can be a significant constraint to institutional reforms. In order to come out of the bad institutions trap, the society needs to offer a substantial amount of incentives to the privileged groups. The focus is on two privileged groups, i.e. the rulers and the state agents. In most of the societies, these two groups have the highest bargaining power in the negotiations over the rules and institutions. JEL Classification:JEL Classification: P48, P16, P14, O43, D73 Institutional Reforms, Natural Resources Wealth, Foreign Aid,Corruption Potential, Rulers, Agents of the State

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Summaries

Environment and Development Economics ◽

10.1017/s1355770x04001561 ◽

2004 ◽

Vol 9 (3) ◽

pp. 279-287

Author(s):

ALBERT N. HONLONKOU ◽

ROBERTO C. YAP ◽

RAMPRASAD SENGUPTA ◽

GEETESH BHARDWAJ ◽

SANG MOK KANG ◽

...

Keyword(s):

Land Tenure ◽

Consumption Pattern ◽

Kuznets Curve ◽

Theoretic Approach ◽

Institutional Reforms ◽

Resources Management ◽

Gas Leakage ◽

Fallow Systems ◽

Game Theoretic ◽

Game Theoretic Approach

Modelling adoption of natural resources management technologies: the case of fallow systemsOption valuation of Philippine forest plantation leasesConsumption pattern, trade, and greenhouse gas leakage in IndiaAn empirical study on effective pollution enforcement in KoreaGovernance, economic policy, and the environmental Kuznets curve for natural tropical forestsLand tenure and conflict resolution: a game theoretic approach in the Narok district in KenyaPolitics of institutional reforms in the water and drainage sector of Pakistan

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Containing Volatility: Windfall Revenues for Resource-Rich Low-Income Countries

10.20944/preprints201607.0090.v1 ◽

2016 ◽

Author(s):

Octave Keutiben ◽

Anton Dobronogov

Keyword(s):

Natural Resources ◽

Foreign Aid ◽

Social Services ◽

Low Income ◽

Rent Seeking ◽

Low Income Countries ◽

Institutional Reforms ◽

Resource Rents ◽

The Government ◽

Model Based Analysis

An abundance of natural resources is both an opportunity and a challenge for developing countries. Several resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from natural resources. In such countries, the donors may have an opportunity to help a government to use its resource revenues productively and minimize the magnitude of risks created by resource rents. Development of aid instruments tailored for such purposes might be helped by model-based analysis of the effects of foreign aid on resource-rich, low-income economies and its interactions with the flows of natural resource revenues. This paper develops a growth model à la Barro in which the government receives windfalls (from natural resources and foreign aid) and rent-seeking agents contest for public funds. The key conclusion is that making aid countercyclical helps to achieve higher economic growth, and so does conditioning disbursements on enhancement of public capital. Introducing elements of insurance in the design of both aid products financing investments in infrastructure and social services and supporting policy and institutional reforms may help to achieve both of these objectives.

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