Predator or Prey: Parasite Enterprises in Economic Development

Journal article

Mehlum, Halvor; Karl Ove Moene & Ragnar Torvik (2003) Predator or Prey: Parasite Enterprises in Economic Development, European Economic Review 47 (2): 275–294.

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.

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