File2-page221 - (viii) inclusion versus exclusion (ix)...

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Social Networks Contracting impediments – industry structures different in developing countries – variety of market imperfections that Frms in developing countries are prone to which they attempt to overcome these using various non-market institutions. Some distinctive contracting arrangements and organisational forms – the use of informal institutions such as the family and community networks Schleifer et. al.: Most Frms in low income countries are family owners and internal as opposed to external Fnance. EfFciency costs of “keeping it in the family”: (i) Constraints to expansion (ii) less protection of minority shareholders (iii) less outside investment (iv) less innovation and technology adoption (v) less growth (vi) widespread restrictions on entry (vii) excess red tape
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Unformatted text preview: (viii) inclusion versus exclusion (ix) elite business groups (x) . .. institutional infrastructure . .. Underlying problem: moral hazard compounded by Fnancial constraints and/or weaknesses in contract enforcement mechanisms Moral hazard (i.e., scope for ex post opportunistic behaviour): represents problem of trust and reliability that are typically overcome by explicit con-tracting or governance structures in developing countries Low income countries are more prone to to these problems because: (i) greater limitations on the design of contracts due to fnancial constraints (ii) weaker contract enForcement institutions (due to weaker legal systems, weaknesses in monitoring and information systems) Development Economics, LSE Summer School 2007 218...
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