Endogenous Institutional Change with Endogenous Interest Groups

This study explores the manner in which the availability of natural resources wealth, foreign aid or corruption potential constrains institutional improvements. By providing a framework, where rulers, bureaucracy and the citizens act endogenously, we show that the rents from these resources can be a significant constraint to institutional reforms. In order to come out of the bad institutions trap, a substantial amount of incentives needed to be offered to the rulers and bureaucrats