Toward a Theory of Rent Seeking and Structural Reforms

30 Pages Posted: 13 Nov 2018 Last revised: 22 Aug 2019

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

Center for International Development, Harvard Kennedy School, Harvard University

Chien-Chiang Lee

Nanchang University

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

zhiming long

Tsinghua University

Date Written: October 15, 2018

Abstract

This paper constructs a dynamic model to explore the intertwined dynamics of the rent-seeking activities that are required to compensate losers in a reform and the adoption of different types of structural reforms in transitional economies. By disaggregating the reforming type into structural reform with gradualist characteristics and shock-therapy structural reform, we show that there are two kinds of optimal reforming sequence: the first case starts with structural reform with gradualist characteristics while the second starts with shock-therapy structural reform. We further demonstrate that whether a social planner starts by adopting the gradualist or shock therapy nature of structural reform is contingent upon the optimal amount of rent-seeking activities required to compensate the potential losers under these two types of structural reform at a given time. Finally, we also implement some simulation analysis to corroborate the theories proposed earlier in the paper.

Keywords: rent seeking activities, optimal reforming sequence, structural reform, gradualist characteristics, shock therapy, potential reform losers

JEL Classification: J41, H53, P26

Suggested Citation

Shen, Jim Huangnan and Lee, Chien-Chiang and Zhang, Jun and long, zhiming, Toward a Theory of Rent Seeking and Structural Reforms (October 15, 2018). Available at SSRN: https://ssrn.com/abstract=3266876 or http://dx.doi.org/10.2139/ssrn.3266876

Jim Huangnan Shen (Contact Author)

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Jun Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

China

Zhiming Long

Tsinghua University ( email )

Beijing, 100084
China

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