Setting Standards: Information Accumulation in Development

We propose a model in which economic relations and institutions in advanced and less developed economies differ as these societies have access to different amounts of information. This lack of information makes it hard to give the right incentiv es to managers and entrepreneurs. We argue that differences in the amount of informaiton arise because of the differences in the scale of activities in rich and poor economies; namely, there is too little repetition of similar activities in poor economies , thus insufficient information to set the appropriate standards for firm performance. Our model predicts a number of institutional and structural transformations as the economy accumulates capital and information.