Information and Transaction Costs as the Determinants of Tolerable Growth Levels

This paper develops a theory to explain growth in developed and undeveloped countries. Where transaction and information costs are low, people more easily perceive and oppose activities conducive to deadweight losses. The opposite holds where information and transaction costs are high, because it will be too costly for relatively weak groups to check the rent-seeking proclivities of the dominant interest groups. And, by definition, high transaction and information costs make it hard to displace incumbent leaders who produce poor growth. The levels of information and transaction costs in different countries will determine how much growth we can expect.