government and institutions

Question 1

Institutions

Answer 1

humanly devised constraints that structure political, economic and social interaction

Question 2

Formal institutions

Answer 2

economic institutions (property rights etc), political institutions (government, electoral systems etc)

Question 3

Informal institutions

Answer 3

culture, social norms

Question 4

Meta institutions

Answer 4

institutions that organise other institutions (government)

Question 5

What governments should do to foster economic development

Answer 5

o Set and enforce the rules – rule of law is the extent to which agents have confidence in the rules of society – a weak rule of law deters investment and results in a high degree of inefficiency
o Intervene in inefficient markets – markets with externalities, public goods markets and natural monopolies – government intervention can enhance efficiency through regulation
o Limit inequality – government safety net policies that transfers from the rich to the poor, and state pension provision that transfers from working-age adults to the elderly – income redistribution keeps social peace and so can positively affect development

Question 6

Governments sometimes act in

Answer 6

o Self-interest – corruption is dishonest or unethical conduct by a person entrusted with a position of authority – corruption at the highest level is kleptocracy
o Self-preservation – an incumbent government may try to restrict development to preserve economic and political power – economic growth may shift the power elsewhere, and better infrastructure may make it easier to spread knowledge and organise protests

Question 7

Positive relationship between ________________ and _________________ – either one can affect the other

Answer 7

Positive relationship between quality of government and level of economic development – either one can affect the other

Question 8

What does an increase in income mean for the government?

Answer 8

Increase in income means government employees are paid more, so there is less corruption and so there is a good government, good government implement policies that influences economic growth, so there is greater economic development

Question 9

Evidence of an good government leading to greater economic development

Answer 9

 Evidence from European Colonisation – colonial governments were installed to maximise revenue that could be collected from the population – currently 22/30 most corrupt countries were European colonies
 Institution quality depended on the number of European settlers – more settlers = good government settlers