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What effects on economic efficiency

There are constant returns to scale for rent seekers

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Unformatted text preview: ’’’ is an UNSTABLE equilibrium where people are split between rent- seekers and produces; but an increase in individuals beyond N’’’ raises returns to rent seeking above those of production and will encourage more and more rent seekers until N=N’’ Institutional framework tells you if you move to producers or rent- seekers at this unstable equilibrium. There are constant returns to scale for rent- seekers (characterized by increasing returns or at minimum constant returns) Subsistence is where you don’t produce anything beyond your costs OR: Does development ! cause corruption Under- development or stagnation produces corruption Rationale: lack of economic progress may encourage corruption among political officials, Poverty encourages rent- seeking behavior Poor human capital encourages rent- seeking behavior Something about the developmental process creates opportunities for corruption Evidence? Although richer countries have less corruption as always, the causality is unclear Measure of corruption and other institutional- quality measures tend to ’cluster” together Sources of Corruption:...
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