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Predator or prey?: Parasitic enterprises in economic development |
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| Authors: | Halvor Mehlum Ragnar Torvik |
| Affiliation: | a Frisch Centre, Department of Economics, University of Oslo, Oslo, Norway b Department of Economics, University of Oslo, P.O. Box 1095, Blindern N-0317, Oslo, Norway c Department of Economics, Norwegian University of Science and Technology, Trondheim, Norway |
| Abstract: | In many developing and transition economies Mafia-like activities are rampant. Extortion and other forms of predation lower profitability in private businesses and distort investment incentives. Incorporated in a model of industrialization, bimodal club convergence may result. Economies may get stuck in a Predators’ Club characterized by a vicious cycle of poverty and predation. Societies with a low flow of new entrepreneurs are especially vulnerable to predation and never get out of this club. Poor societies with a high flow of new entrepreneurs, however, may grow out of the trap and join the rich Producers’ Club. |
| Keywords: | O1 O4 |
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