Working Paper: NBER ID: w12093
Authors: Raghuram G. Rajan
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.
Keywords: rent preservation; underdevelopment; reform; inequality; political institutions
JEL Codes: O10; O15; P52; K00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inequality (D63) | Divergent preferences for reforms (D72) |
| Educated constituency favors pro-market reforms (D72) | Economic opportunities (N91) |
| Educated constituency opposes educational reforms (I28) | Competition and rents (L13) |
| Uneducated constituency supports educational reforms (I28) | Improved opportunities (I24) |
| Uneducated constituency opposes pro-market reforms (D72) | Rising costs and competition (D49) |
| Oligopolists prefer status quo (D43) | Preservation of rents (R21) |
| Divergent preferences among constituencies (D79) | Paralysis of reform efforts (P11) |