L5

Question 1

why does bad institutions exist?

Answer 1

Rent seeking = benefit high for some people/companies and cost low to a lot of people
People that are hurt from the system are not hurt enough to resist the system
Ideology, society argument = people believe that institutions are important for other reasons than economical growth
Information argument = do not believe what theory says about good institutions

Question 2

explain development paradox

Answer 2

High subsidies in rich countries and high tax in poor countries with lot of farmers
The benefits are very concentrated and therefore they have incentives to organize and demonstrate
Urban bias = low food prices keep consumers happy and reduce risk for revolt in city

Question 3

Explain why some old colonists have bad institutions and other have good

Answer 3

Places with diseases people had to move fast, get resources and go home -> rent institutions
where people could live permanent, invest and survive etc. they copied the institutions from there home country

Question 4

3 types of reform

Answer 4

land = farmers got back their land
prices= market decide prices
market = instead of state as one company there were a lot of companies with competition