Rent Preservation and the Persistence of Underdevelopment

Raghuram G. Rajan

NBER Working Paper No. 12093
Issued in March 2006, Revised in June 2020
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Law and Economics

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w12093

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