Regulatory Barriers and Entry in Developing Economies

39 Pages Posted: 13 Jun 2006

See all articles by John Bennett

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

Saul Estrin

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: May 2006

Abstract

We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to "excessive" entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough.

Keywords: entry, entry barriers, developing economy

JEL Classification: L50, O14

Suggested Citation

Bennett, John and Estrin, Saul, Regulatory Barriers and Entry in Developing Economies (May 2006). IZA Discussion Paper No. 2150. Available at SSRN: https://ssrn.com/abstract=908231

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

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+44 1895 816 201 (Phone)
+44 1895 203 384 (Fax)

Institute for the Study of Labor (IZA)

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University of Wales, Swansea - School of Business and Economics ( email )

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United Kingdom
+44 1792 295 168 (Phone)
+44 1792 295 872 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

Saul Estrin

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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