Rent Preservation and the Persistence of Underdevelopment

65 Pages Posted: 14 May 2006 Last revised: 19 Jul 2010

See all articles by Raghuram G. Rajan

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: March 2006

Abstract

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.

Suggested Citation

Rajan, Raghuram G. and Zingales, Luigi, Rent Preservation and the Persistence of Underdevelopment (March 2006). NBER Working Paper No. w12093, Available at SSRN: https://ssrn.com/abstract=889883

Raghuram G. Rajan (Contact Author)

University of Chicago - Booth School of Business ( email )

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Luigi Zingales

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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