Deals vs. rules

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Over on the All About Finance blog, Mary Hallward-Driemeier has an excellent post on the "deals" that firms have to make in countries with excessive regulations. Money quote: 

For countries with lengthy requirements...almost no firm actually faces the formal burdens on the books.

This does not mean that lengthy formal practices are costless. Rather, firms ‘pay’ through other channels. This variation in implementation is associated with greater activities on the part of firms to influence the actions of officials (e.g. paying bribes or spending time with officials). Rather than coping with the application of (more or less favorable) rules, firms face deals. And the larger the gap between the de jure and de facto outcomes, the greater the potential space for deals, and indeed, the more prevalent are bribes.


Ryan Hahn

Operations Officer

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