Edited by Ram Mudambi, Pietro Maria Navarra and Giuseppe Sobbrio
Chapter 12: The Politics of Poverty
Thráinn Eggertsson 1. INTRODUCTION Although the complex causes of economic decline and economic backwardness probably defy generalization, I will attempt in this chapter to examine some of the political aspects of poor economic performance and distill basic themes from the new institutional economics and related fields concerning the interaction between politics and poverty. Static institutional analysis models the link between institutions and poor economic performance roughly in the following terms. A country is poor because its basic structure of formal and informal rules – its institutional environment – creates incentives that have perverse effects for economic progress. In the economic domain, the environment discourages capital formation, directs economic agents away from valuable economic opportunities, and encourages rent seeking. The citizens share norms that are hostile to economic progress and institutional reforms, and political actors prefer policies that undermine long-term growth. In the new institutional analysis, static models take the preferences of actors as given and unchanging. Furthermore, the worldviews of actors are neutral rather than a force driving the analysis. For instance, in analyzing decisions about institutional policy, even in historical times, the investigator usually tacitly assumes that the decision maker shared his or her current social theories or social models. Competing social models or social technologies have no role in these studies, even when they analyze the behavior of actors who are attempting to make complex changes in the structure of their social systems, either for redistributive or remedial purposes. The assumption that rational selfish rulers and administrators have complete...
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