Policy Design and Rent Seeking: Targeted Versus Broad Based Intervention

9 Pages Posted: 19 Oct 2006

See all articles by Kjetil Bjorvatn

Kjetil Bjorvatn

Norwegian School of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute)

Nicola D. Coniglio

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods

Abstract

The present paper analyzes how policy intervention should be designed so as to create industrialization. We focus on whether intervention should be targeted, promoting investment in specific firms or industries, or broad based, increasing the profitability of investment in general. Our main argument is that in areas with weak institutions, broad based policies should be chosen, while in areas with strong institutions, targeted policies may be less costly in moving the economy out of a poverty trap. The targeted policy is attractive because it internalized a demand externality, but is also more exposed to rent seeking, since "picking a winner" involves a greater measure of discretion in policy formulation and implementation. The broad based policy does not discriminate between industries and is, hence, less likely to be captured by rent seekers, but also does not take advantage of the demand externality.

Suggested Citation

Bjorvatn, Kjetil and Coniglio, Nicola D., Policy Design and Rent Seeking: Targeted Versus Broad Based Intervention. Review of Development Economics, Vol. 10, No. 4, pp. 577-585, November 2006, Available at SSRN: https://ssrn.com/abstract=938590 or http://dx.doi.org/10.1111/j.1467-9361.2006.00331.x

Kjetil Bjorvatn (Contact Author)

Norwegian School of Economics and Business Administration ( email )

Helleveien 30
N-5035 Bergen
Norway
47-55 9595 85 (Phone)
47-55 9595 43 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Nicola D. Coniglio

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods ( email )

Largo Abbey St. Scholastica
Bari, 70124
Italy

HOME PAGE: http://www.dse.uniba.it/Corsi/docenti/Coniglio/Nicola_paginaWeb.htm

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