 David C. Kang, Transaction Costs and Crony Capitalism in East Asia Why did cronyism impede growth in some developing countries but not in others? Theoretical analyses of transaction costs and the new institutional economics can help answer this question. A comparison of Korea, the Philippines, and Indonesia shows that, if there is a situation of mutual hostages among a small and stable number of government and business actors, cronyism can reduce transaction costs and minimize deadweight losses, while a situation in which there are either too few or too many actors increases deadweight losses through corruption. |