Politicians, Firms and the State of Institutional Environment

Abstract

The model we develop analyses how the state of an institutional

environment influences resources allocation in a transition economy.

We capture the interaction between politicians who influence

firms decisions regarding resources allocation and managers, introducing

a parameter which measures the strength of institutions.

The results of our model confirm that building up strong institutions

in a transition economy can play a central role in privatisation

and restructuring processes and motivate agents to agree on

a better resources allocation.