TY - BOOK ID - 138931843 TI - Institutional Trap PY - 2004 PB - Washington, D.C., The World Bank, DB - UniCat KW - Agents KW - Bargaining KW - Consensus KW - Corruption KW - Entry KW - GDP KW - Gi KW - Index KW - Institutional Change KW - Iru KW - Licensing KW - Ms KW - Nature KW - Production KW - Roads and Highways KW - Supply KW - Transport KW - Vd KW - Vdu KW - Wealth KW - Wealth Constraints KW - Zdv UR - https://www.unicat.be/uniCat?func=search&query=sysid:138931843 AB - The author studies the persistence of inequality and inefficient governance in a physical capital accumulation model with perfect information, missing credit markets, and endogenous barriers to entry. When access to investment opportunities is regulated, rent-seeking entrepreneurs form coalitions of potentially varying size to bribe a regulator to restrict entry. Small coalitions run short of resources, while large coalitions suffer more severe free-rider problems. The distribution of wealth thus determines the equilibrium coalition structure of the economy and consequently the level of regulatory capture. A dynamic analysis supports the persistence of inefficiencies in the long run. Initial conditions determine whether the economy converges to a steady state characterized by efficient governance and low levels of inequality, or a path toward an institutional trap where regulatory capture and wealth inequality reinforce each other. This paper-a product of the Poverty Team, Development Research Group-is part of a larger effort in the group to understand the determinants of institutions. ER -