Rent-seeking Economy Research Articles

Entrepreneurship, Resource Rents and Institutions

Abstract The resource curse hypothesis supposes that rents generated by resource booms create opportunities for rent-seeking activities, which weaken innovation and economic development due to the potentially adverse effects in competitive markets. The quality of institutions is an important channel to transform society from a rent-seeking economy to an entrepreneurial economy. We address in this paper these channels by examining necessity, opportunity, productive and innovative measures of entrepreneurship. Using annual data from 2002 to 2017, we estimate the relationship between entrepreneurship and natural resource rents for 60 countries. Allowing for measures of institutions (corruption, government policies, and cultural and social norms) and real GDP growth, we find that natural resource rents have negative effects on productive and innovative entrepreneurship, especially in high-income countries. In threshold dynamic panels, entrepreneurial activities grow with higher levels of corruption (weaker institutions), with an interpretation provided based on the higher corruption in developing economies.

Doing business under the framework of disorder: illiberal legalism in Indonesia

The rule of law has been widely perceived as an important prerequisite for economic development. However, many cases in postcolonial countries have shown that the two may not always be strongly related. Drawing from the case of Indonesia, we found that economic development can also be accompanied by a distinctly illiberal legal framework. Instead of being obstacles, legal uncertainty and lawlessness are in some ways instrumental in facilitating particular experiences of economic development, constituting the failure of legal reform. This means that illiberal legalism is not an exclusive characteristic of transitional states nor necessarily the result of a cultural feature of developing societies where multiple legal systems coexist. Rather, illiberal legalism is an outcome of a particular development of capitalism in some countries in the Global South where legal institutions work as an instrument of rule. While there is no single model of illiberal legalism, the Indonesian case represents an example where an illiberal politico-legal system coexists with a predominantly rent-seeking economy. The Indonesian case was analysed based on fieldwork conducted in Jakarta from December 2019 to January 2020 and secondary data collected until the time of writing.

Agricultural Policy and Political Governance in Nigeria: Fiscal Sociology and the Challenges of a Rent-Seeking Economy

Despite the current financial crisis facing all levels of governments of Nigeria, virtually no efforts have been directed at the sociological analysis of the finances. The situation particularly begs for attention considering the dwindling agricultural status, focusing on cocoa, and the multiple socio-economic, political and cultural distortions embedded in its monolithic source of revenue. The literature is replete with the sociological analysis of pubic financial management. However, those analyses appear to be much more concentrated on the advanced than the developing economies. In this review article, we attempted a public economy discourse of developing economies, focusing on the deleterious interplays between the dominant oil income and agricultural outputs and how the duo has made Nigeria a rentier economy. With a critical review of integrated literature on the sociology of oil politics; the institutional and symbolic element of the tax-dependent economy; and the historical volatility of rentier economies; we critically drew a nexus between the current life-threatening revenue profile of Nigeria and her major, if not solitary, reliance on petrodollar as well as the socio-cultural manifestations. Like this, the essay advanced the significance of fiscal sociology as a veritable tool for constructing a theory about state finances. DOI: 10.7176/JESD/10-14-08 Publication date: July 31 st 2020

Entrepreneurial networks as informal institutions in transitional economies

ABSTRACT This mixed-method study examines entrepreneurial networks as informal institutions established by local entrepreneurs in order to navigate the voids of formal institutions in the context of transitional economies. We first hypothesize the model developed in the qualitative study based on the voice of local practitioners and supported with literature. Then, we quantitatively test the model in two different contexts of institutional void – in the rent-seeking Ukraine and state-controlled Belarus in 2000s. It reveals that entrepreneurs who embrace norms of ‘right ties,’ ‘right identity,’ ‘right interests’ and ‘right actions’ rease their chances to join local entrepreneurial networks as perceived reliable personally and professionally, which results in network support. In a rent-seeking economy, entrepreneurs refer to ‘right identity’ and ‘right interests’ as priorities for their networks as informal institutions, while in the state-controlled economy, entrepreneurs prioritize ‘right identity’ and ‘right actions’.

Political Economy of Rent Seeking in Local Governance: Causes, Forms, and Responses Towards (Evidences from Adigrat Town Administration, Ethiopia)

Irrespective of the nature of a state, the issue of rent seeking remains ubiquitous. This paper assesses the prevalence of rent seeking from local governance perspective providing a focus on the major causes, forms and the efforts made in Adigrat Town. In so doing, the study has used both quantitative and qualitative research methodologies. Primary and secondary data sources were also utilized. Accordingly, the sluggish form of public services, lack of institutionalized practices, prevalence of mutual mistrusts, materialistic and self-centered motives, and embedded patrimonial relations have unleashed the practices of rent seeking in the Town. Bureaucratic corruption, lobbying practices, bribery, and actions of collusive interests were endemic forms of rent seeking prevailed in the Town. In connection, rent seeking situations where individuals negotiate over exclusive benefits and favor-seeking groups capture the public offices were common. Remedies of mainstreaming rent seeking as a public agenda, regular evaluation on performances, involvement of stakeholders in decision making, enforcement of legal measurement, introduction of ICT, and awareness creation were found too nascent. Thus, the respective public sectors should acquaint with anti-rent seeking strategies including meritocracy, party and government roles delineation, rebuilding the social capital, independent law enforcement, and delivering ICT-backed services.

Ideas, networks and jobs: rebasing growth in the Middle East and North Africa

ABSTRACTOil rents are set to wane. In the MENA Region, the legacy of four decades of dependence on oil is an economy that is not generating enough opportunities for productive employment. This paper set out a policy agenda for gradual change that is cumulatively transformative. Directly, productivity can be increased by encouraging clusters of firms capable of innovation, linked to vocational training that equips a workforce with the skills that firms need. But the socio-political transformation from a rent-seeking economy to a skill-based economy is more complex, requiring both cultural and institutional change. This cannot be planned in detail: a transformation is a unique event subject to radical uncertainty. It calls for a process of rapid social learning based on experimentation. As the society adapts, new opportunities open, and the next steps clarify. I give examples of how an adaptable framework has been built elsewhere.

Quality and its role in the management of tourism as one of the sources of funding in the Kurdistan Region of Iraq

The problem of the study comes out of unknowing the effect of quality of tourism services on the development of tourism sector, which leads to deepen more in rent-seeking economy in Kurdistan region, lack of cultural level and awareness make the tourism resorts are not attractive for tourists, the absence of tourism facilities such as hotels, restaurants, furnished apartments for tourists especially in tourism seasons for the purpose of benefiting it as a financing source, and also depending on oil have led not to pay attention to other sectors like tourism sector. 
 The objective of the study is knowing the role of tourism services quality of hotels of Sulaimaniyah governorate, via knowing tourism management and to whaat extent they have services quality, the researchers used the analytical descriptive method and they have taken a sample of hotels in Sulamaniyah governorate which are Sulamaniyah Palace hotel, Paradise hotel, Yelda hotel and Ramada hotel, by distributing questionnaire among employees who work in top and middle management levels such as top managers and executive managers, and questionnaire distributed randomly and the questionnaires are responded by (39) persons with the proportion (86.67%). The study concluded that taking the implementation of services quality in tourism; especially, in hotels is very necessary.

The Economic Activities of the Pasdaran

This article analyzes the Pasdaran’s economic activities which take place in sectors like construction, agriculture, energy, telecommunications, etc. Political leverage has allowed their development through government contracts and the buying out of public companies during privatization programs. The Pasdaran have justified their economic activities as a plan to create an “economy of resistance” by decreasing foreign dependency. Nevertheless, there has been criticism of this military business: it constrains the development of the private sector and represents a cost for public finances as the Pasdaran do not pay taxes on these activities. Iran is a rent-seeking economy characterized by a large indetermination of property rights. The Pasdaran is just one of the actors among others, competing in this system.

The Arc of Modernization: Economic Structure, Materialism, and the Onset of Civil Conflict

The onset of intrastate conflict has two requisite conditions: that prospective insurgents have an incentive to rebel, and that the state lacks the capacity to deter such a rebellion. We outline a simple rationalist argument grounded in gains from economic growth—to both individual income and state revenue—to argue that modernization has the potential to affect the likelihood of civil conflict through both of these conditions. The shift away from a rent-seeking economy affects opportunity costs for rebellion by increasing the cost of recruitment, broadening the time horizon for gain, and decreasing looting possibilities. On the state side, modernization increases state military, economic, and institutional capacity, allowing governments to deter rebellion. We construct an index of modernization from World Bank data and apply a strategic model to explore the effect of modernization on both states and rebels simultaneously. We find that the modernization process describes an arc that may increase the likelihood of unrest in the early stages, but has long-term stabilizing effects.

The political economy of rent seeking: The case of Israel's water sector

The paper examines the success of Israeli farmers in retaining their political clout at a time when their sector was shrinking. Comparing differing explanations, it is shown that since the 1970s farmers' effective rent seeking explains their success in an ongoing political struggle – mainly against the Ministry of Finance – to buy water at subsidized rates. The characteristics of Israeli farmers' successful rent seeking are portrayed, and the logic behind success is analyzed. Finally its consequences – directly influencing income distribution, and indirectly contributing to aquifer depletion and desalination postponement – are examined.

Rent Seeking Behavior in Transition Countries: The Case of Romania

This paper points out, in the changing institutional setting of transition in Romania, Some relevant factors influencing economic actors to behave in a way that pushes them to devote resources to unproductive goals, rather than to embark on activities that add economic and social value. The theoretical insights offered in the literature of rent seeking are applied to the issues of transition. A mathematical model of a rent seeking economy is presented, analyzing the influence of interest groups activity on the overall income of the economy. Some examples of rent seeking behavior that severely hamper the economic efficiency are illustrated for the case of Romania. The conclusion is that, in appreciating the progress in transition, the reduction in rent seeking is an important factor to be taken into consideration.

Functioning of market economy and rent-seeking: Why it is necessary to diminish the role of government in economic affairs?

At the beginning, the author points out that rent-seeking economy is a distinctive phenomenon for majority of the contemporary market economies. It is reflected in the aspirations of the well organised interest groups to capture public choice and politicians as a tool to gain non-market benefits for themselves, or to take activities to gain income by non-market redistributions instead to do it on the market. According to the author examples of rent-seeking economy are antitrust, arbitrary export-import restrictions, subsidies for various sectors of economy, unions' practices of closed shop or collective bargaining. The author notes that there are legitimate public goods and services (such as military and police services or infrastructure) and therefore legitimate taxing and spending for providing of such public necessities. In his opinion, however, rent-seeking economy results from the growing government intervention in economy based upon widening of its role and responsibility to handle a wide spectrum of illegitimate ??social?? issues, rather than rest upon better providing of classical government services. Rent-seeking economy is a result of abandoning the strict market economy with no or little income gained by the extra market redistribution. The social environment where it is permissible and desirable to remove as great as possible economic activities from the free, non-regulated markets to the public sector or to the sector of the highly regulated economy which is cartelised by coercion, leads entrepreneurs to change their orientation. They do not perceive the regular competition as the best way to make success, but by lobbying with the political bodies. The basic rule of rent-seeking is that when there is a chance to gain rent, there will be someone who will try to get it. Therefore, in the author's opinion the government and the public inclining towards state interventionism are the main to blame for the rise of rent-seeking. This is because they make chances to gain rents since the general social and political environment enables it, as well as because there is an insufficiency of detailed legislative and constitutional restrictions on the role of the government in economy. Therefore, the basic condition for elimination or at least reduction of the scope of rent-seeking economy, in the opinion of the author, is to drastically diminish the role of the government in economic affairs. In that way the economy would be strictly separated form the politics, and entrepreneurs would be sent a signal that the reallocation of resources from productive to lobbying activities for gaining privileges is not an appropriate way to gain income. Within this context, the author points to consideration of the achievements of the James Buchanan's public choice theory that deals with the defects of political decision-making. He also points to the fact that the essence of the liberal constitutional reform that could diminish the scope of rent-seeking could be best perceived in the words stated by Friedrich Hayek the Nobel prize winner, saying that the government should be prohibited to employ ??coercive discriminatory acts??. This means that the government should not employ its monopoly of physical force to award economic privileges to anyone, but it should adopt laws of general use to be applied to the unknown number of cases in the future, concludes the author.

Alternative scenarios for Ukraine

Major trends and driving forces are analysed in four areas, i.e. polity, economy, society and international environment of Ukraine, as well as their inter-linkages, in order to define overall dynamics of Ukrainian society. It leads to three basic scenarios for the medium term: a pan-Slavic state centred scenario (example Belarus), a feudalisation/mercantilist scenario (example Pakistan) and a liberalisation scenario (example Mexico). It is argued that the rent seeking state and the rent seeking economy are deeply rooted in a society that can be characterised as patrimonial. Although having some distinctive features, such as high level of human capital and an over-powerful state, Ukraine faces problems that are characteristic for many stagnating Third World countries. A predatory and patrimonial state could develop due to the weakness of civil society. As Aristotle has said, we can learn the nature of anything when it has reached and past its maturity. Since the abolishment of communism and the proclamation of independence, in 1991, Ukraine is experiencing a turbulent transition to a new social, political and economic system. The most tangible change was the transition from an industrialised country, where people were assured of a decent living standard, to a country where industrial production declined by 75 per cent and where the overwhelming majority of the population has been pushed into poverty. The scale and speed of deprivation was unheard of as was the social peace that accompanied this destructive movement. Leonid Kuchma, who played a major role in Ukraine for most of the 1990s as President and as Prime Minister, was re-elected by the Ukrainian population with a big margin (56 per cent) in November 1999, when faced with the choice between Kuchma and Symonenko, the latter being an orthodox communist. It showed, to a certain extent, the break with the communist past although Ukraine has not developed yet into a participatory democracy. But Ukraine has consolidated its status as an independent nation in the heart of Europe. However, the overall impression is that of disintegration, hierarchical breakdown and decline. Ukraine has been the only transition economy not to have known at least one year of economic growth during the 1990s. Only in 2000 the Ukrainian economy started to grow. Here, an analysis is made of defining features and major trends in the political sphere, the economy, society and the international environment in order to identify overall dynamics. This exercise allows the formulation of relevant questions about the interrelationships of the various sub-systems in society as well as the major challenges that Ukraine may face in the medium term.

Price discrimination in a rent-seeking economy

This paper examines the incentive and the consequences of using discriminatory pricing by a monopolist in a rent-seeking economy. It is shown that, even if all consumer groups' demands have identical elasticities at any given price, the monopolist has an incentive to charge a lower price to high pressure consumer groups so as to alleviate their rent-seeking efforts in challenging its monopolistic power. Furthermore, it is shown that by allowing the firm to price discriminate total welfare may increase, even if all rent-seeking expenditures are completely wasteful.

Political economy of rent-seeking under alternative trade regimes

Die politische okonomie des “Rent-seeking” unter alternativen Au\enwirtschaftssystemen. — Mit Hilfe eines berechenbaren Modells des allgemeinen Gleichgewichts zeichnen die Autoren den Typ einer Volkswirtschaft, in dem prAferenzmaximierende (rationale) Produzentenhaushalte einen Teil ihres nominalen Einkommens fur „rent-seeking”-AktivitAten (Bestechungen) aufwenden, um die Behorden bei der Wahl der exportfordernden Instrumente zu beeinflussen. Die Autoren benutzen Daten uber die turkische Volkswirtschaft, um die Folgen alternativer Ma\nahmen einer au\enwirtschaftlichen Abschottung auf die „rent-seeking”-AktivitAten zu analysieren. Dabei stellt sich heraus, da\ die Instrumentenwahl der Behorden sowohl von den zugrundeliegenden Au\enwirtschaftssystemen als auch von den privaten “rent-seeking”-AktivitAten beeinflu\t wird und da\ das PhAnomen des „rent-seeking” nicht notwendigerweise ein „geschlossenes” okonomisches Umfeld verlangt, sondern auch mit den sogenannten „offenen” Strategien des exportinduzierten Wachstums verbunden werden kann.

Seeking Rents by Setting Rents: The Political Economy of Rent Seeking

In recent years, there has been a large number of papers on the subject of rent seeking. Most such works on rent seeking have taken the rent as exogenously determined by regulators. Regulators, howeve r, may also be expected (and indeed have been shown) to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are, themselves, rent se ekers. In this paper, the authors do this by presenting an analysis o f the interaction of regulators, firms, and consumers within a rent-s eeking framework where all three groups are assumed to be self-motiva ted. The analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants. Policy implications are drawn where appropriate. Copyright 1987 by Royal Economic Society.