Politicians, Firms and the State of Institutional Environment

Davide Infante ; Janna Smirnova

Corresponding Author, Associate Professor, Department of Economics and Statistics, University of Calabria, 87036, Campus di Arcavacata di Rende (Cosenza), Italy, Tel: 0039-0984-492460, Fax: 0039-0984-492421 d.infante@unical.it
Postdoctoral Research Fellow, Department of Economics and Statistics, University of Calabria, 87036, Campus di Arcavacata di Rende (Cosenza), Italy, Tel: 0039-0984-492444, Fax: 0039-0984-492421 smirnova@unical.it

JEL Classification: H3, P2, P3

Abstract

The model we develop analyses how the state of an institutional environment influences resources allocation in a transition economy. We capture the interaction between politicians who influence firms’ decisions regarding resources allocation and managers, introducing a parameter which measures the strength of institutions. The results of our model confirm that building up strong institutions in a transition economy can play a central role in privatisation and restructuring processes and motivate agents to agree on a better resources allocation.

Keywords:

Institutional environment, Transition economies, Rent-seeking

References

Acemoglu, D., Johnson, S., and Robinson, J. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91 (No. 5 2001): 1369-401. [https://doi.org/10.1257/aer.91.5.1369]
Aidis, R., and Estrin, S. Institutions, Networks and Entrepreneurship Development in Russia: An Exploration. IZA Discussion Paper 2161, 2006. [https://doi.org/10.2139/ssrn.910224]
Bardhan, P. “Corruption and Development: A Review of Issues.” Journal of Economic Literature 35 (No. 3 1997): 1320-46.
Cukierman, A., and Edwards, S. “Seigniorage and Political Instability.” American Economic Review 82 (No. 3 1992): 537-55.
Damania, R., Fredriksson, P. G., and Mani, M. “The Persistence of Corruption and Regulatory Compliance Failures: Theory and Evidence.” Public Choice 121 (Nos. 3-4 2004): 363-90. [https://doi.org/10.1007/s11127-004-1684-0]
Djankov, S, Glaeser, E. L., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. The New Comparative Economics. NBER Working Papers Series No. 9608, 2003. [https://doi.org/10.3386/w9608]
Ellis, C. J., and Fender, J. “Corruption and Transparency in a Growth Model.” International Tax and Public Finance 13 (Nos. 2-3 2006): 115-49. [https://doi.org/10.1007/s10797-006-1664-z]
Esfahani, H. S. “Institutions and Government Controls.” Journal of Development Economics 63 (No. 2 2000): 197-229. [https://doi.org/10.1016/S0304-3878(00)00119-X]
European Bank for Reconstruction and Development. Transition Report 1999. London: EBRD, 1999.
Gradstein, M. “Governance and Growth.” Journal of Development Economics 73 (No. 2 2004): 505-18. [https://doi.org/10.1016/j.jdeveco.2003.05.002]
Grossman, H. I. Papers and Proceedings of the Hundred Thirteenth Annual Meeting of the American Economic Association: 345-52, 2001.
Guriev, S. “Red Tape and Corruption.” Journal of Development Economics 73 (No. 2 2004): 489-504. [https://doi.org/10.1016/j.jdeveco.2003.06.001]
Hellman, J., Jones, G., and Kaufmann, D. Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition. World Bank Policy Research Working Paper 2444, 2003. [https://doi.org/10.1016/j.jce.2003.09.006]
Huang, H., and Xu, C. “Institutions, Innovations, and Growth.” American Economic Review 89 (No. 2 1999): 438-43. [https://doi.org/10.1257/aer.89.2.438]
Infante, D., and Smirnova, J. “Entrepreneurship, Rent-seeking Spillovers and Decreasing Returns. A Microeconomic Approach.” Acta Oeconomica 59 (No. 1 2009a): 79-89. [https://doi.org/10.1556/aoecon.59.2009.1.4]
Infante, D., and Smirnova, J. “Rent-seeking under Weak Institutional Environment.” Economics Letters 104 (No. 3 2009b): 118-21. [https://doi.org/10.1016/j.econlet.2009.04.022]
Intriligator, M. D. “Reform of the Russian Economy: The Role of Institutions.” International Journal of Social Economics 23 (Nos. 10-11 1996): 58-72. [https://doi.org/10.1108/03068299610149453]
Jack, W. “Institutional Design and the Closure of Public Facilities in Transition Economies.” Economics of Transition 10 (No. 3 2002): 619-35. [https://doi.org/10.1111/1468-0351.t01-1-00127]
Lambsdorff, J. G. “Corruption and Rent-seeking.” Public Choice 113 (Nos. 1-2 2002): 97-125. [https://doi.org/10.1023/A:1020320327526]
Lee, J. H. “Business Integrity, Public Sector Integrity, Income and National Competitiveness: A Cross-country Level Analysis.” Seoul Journal of Economics 18 (No. 2 2005): 125-46.
Mauro, P. “Corruption and Growth.” The Quarterly Journal of Economics 110 (No. 3 1995): 681-712. [https://doi.org/10.2307/2946696]
Myant, M. “Economic Transformation in the Czech Republic - a Qualified Success.” Europe-Asia Studies 59 (No. 3 2007): 431-50. [https://doi.org/10.1080/09668130701239872]
Ofer, G. “Transition and Development Economies: Comparing the Quality of Governments.” In Political Economy of Transition and Development, Nauro Campos and Jan Fidrmuc (Eds.), Dordrecht: Kluwer Academic Publishers, pp. 69-96, 2003. [https://doi.org/10.1007/978-1-4615-0439-9_4]
Saha, B. “Red Tape, Incentive Bribe and the Provision of Subsidy.” Journal of Development Economics 65 (No. 1 2001): 113-33. [https://doi.org/10.1016/S0304-3878(01)00130-4]
Shleifer, A., and Vishny, R. W. “Politicians and Firms.” The Quarterly Journal of Economics 109 (No. 4 1994): 995-1025. [https://doi.org/10.2307/2118354]
Skaperdas, S., and Syropoulos, C. “Guns, Butter, and Openness: On the Relationship between Security and Trade.” American Economic Review 91 (No. 2 2001): 353-7. [https://doi.org/10.1257/aer.91.2.353]
Tarushkin, A. B. Institutional Economics. Saint Petersburg: Piter Press, 2004.
Ventelou, B. “Corruption in a Model of Growth: Political Reputation, Competition and Shocks.” Public Choice 110 (Nos. 1-2 2002): 23-40. [https://doi.org/10.1023/A:1013034225646]