In developing countries, particularly in those that have experienced declining growth rates, institutional failure is closely related to development failure and growth collapse. This study addresses the issues of commitment, compromise and rent-seeking, all of which are relevant to institutional design and the formulation of optional policies, including the regulation of privatized utilities and enterprises. The models in the study are within the genre of endogenous policy formation, transaction-cost politics, and models of rent-seeking. The study also discusses the difficulties and temptations experienced by the people associated with the state in adhering to optimal policies of no rent-seeking as well as the general expectation that government staff are rent-seekers. A rent-seeking game was constructed in the form of a contest between different individuals striving to obtain a non-divisible prize. The contest entails aggregate cost which detracts from economic production and the best use of entrepreneurial talent. Lastly, the study also examines the sustainability of a political compromise between competing groups, one that is eventually aimed at reducing rent-seeking.
