We construct a model of “embedded autonomy,” the idea that the closeness of bureaucrats and business people may lead to growth‐promoting policies by the government, though at the risk of leading to crony capitalism. We analyze how the level of monitoring to control corruption and the weight given to the future affect the nature of the possible outcomes. We explore possible tradeoffs between growth and inclusiveness and discuss how our model relates to more general concepts of inclusiveness of institutions, as framed by Acemoglu and Robinson, or the nature of “access orders,” as introduced by North, Wallis, and Weingast.
We model the concept of embedded autonomy, introduced by Peter Evans, as an interaction between bureaucrats and entrepreneurs, where bureaucrats must approve projects proposed by entrepreneurs. Entrepreneurs are better informed about their own projects than are bureaucrats, but bureaucrats can receive signals about project quality from entrepreneurs. If bureaucrats and entrepreneurs are more closely connected, say through social ties, they receive more informative signals. However, greater closeness will simultaneously relax the standards for project approval. Hence, there is a tradeoff between these two effects of social closeness, which helps capture the concept of embedded autonomy.
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