Institutions and Government Controls

Bureau of Economics & Business Research WP No. 98-0124

Posted: 22 Feb 1999

See all articles by Hadi Salehi Esfahani

Hadi Salehi Esfahani

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: December 1998

Abstract

This paper develops a model of government policy toward industrial control and regulation that sheds light on the determinants of differential country experiences in terms of organizational arrangement and enterprise performance. In contrast to the model developed by Shleifer and Vishny (1994 and 1998), which suggests that government controls over firms come about when politicians can use public funds to buyoff the managers and solicit their cooperation in politically-motivated redistribution of rents, the present shows that it may be the ability to use the government's regulatory powers at discretion that encourages politicians to impose controls on firms and redistribute their rents. The model implies that the politicians' appetite for intervention tends to be greater when the cost of collecting and using public funds is higher, which is the opposite of what the Shleifer-Vishny model predicts. The present model helps explain the puzzling observation that countries with poor institutions are more likely to impose extensive controls on production and maintain large and inefficient public sectors. The model also sheds light on a variety of other stylized facts and puzzles and offers new hypotheses to be tested.

JEL Classification: L51

Suggested Citation

Esfahani, Hadi Salehi, Institutions and Government Controls (December 1998). Bureau of Economics & Business Research WP No. 98-0124, Available at SSRN: https://ssrn.com/abstract=150592

Hadi Salehi Esfahani (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Department of Economics
1206 South Sixth Street, 210DKH
Champaign, IL 61820
United States
217-333-2681 (Phone)
217-333-1398 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
747
PlumX Metrics