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Seoul Journal of Economics - Vol. 23 , No. 3
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[ Article ]
Seoul Journal of Economics - Vol. 23, No. 3, pp. 391-406
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2010
Received 17 Oct 2008 Revised 06 Oct 2009 Accepted 22 Oct 2009

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
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