Setting Standards: Information Accumulation in Development

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