Credibility and reputation building in the developmental state: A model with East Asian applications

We use a game-theoretic model to analyze the role of credibility, reputatio n and investment coordination in a developmental state. Our model focuses o n why a "soft" slate serving narrow social groups so often obtains in less- developed countries and under what conditions a "hard" or developmental sta te can emerge. The model highlights the dilemma that although state and pri vate sector alike may want economic growth, both must simultaneously invest to achieve it. But the equilibrium outcome-analogous to the prisoner's dil emma-is investment by neither. Even when initial conditions are favorable a nd a state is potentially developmental with the genuine capability to elic it private sector investment, this may not materialize and an equilibrium o f low, or no, investment will prevail. To avoid this deadlock and foster gr owth, the successful developmental state must demonstrate commitment by pro moting its "developmental" credentials through a process of reputation buil ding. A. consequent incentive to act "tough" together with seeming advantag es of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system. (C) 2001 Elsevier Science Ltd. All rights reserved.