Digitized by the Internet Archive in 2011 with Funding from Boston Library Consortium Iviember Libraries Orking Paper Department of Economics M Setting Standards: Informa Tion a Ccumula Tion 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 incentives to managers and entrepreneurs. We argue that differences in the amount of information 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.