A model of institutional formation within a rent seeking environment

This paper. presents a game theoretic model in which some fraction of outpu t is appropriated from entrepreneurs. Entrepreneurs are able to form a leag ue to prevent this appropriation, but this might not be individually ration al because of either the free rider problem or coordination failure. The mo del also shows that poorer countries are less able to form this league and so might not be able to develop institutions establishing property rights. (C) 2001 Elsevier Science B.V. All rights reserved. JEL classification: O10 ; H41.