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Htxloleulxp frqfhsw kdv ehhq ghyhorshg e| Ehuqkhlp dqg Zklq0 vwrq +4<;9,1 < wlrqv/ wkh lqwhjudo Wr dffrxqw iruUwkh glvfuhwhqhvv ri wkh srsxodwlrq zkloh pdlqwdlqlqjUfrqvlvwhqw qrwd0 "gI f dgI E grhv qrw lqfoxgh wkh xsshu0erxqg d/ zkloh d dn E grhv d lqfoxgh d= 47 pxowlsolhu dvvrfldwhg wr wkh exgjhw frqvwudlqw1 Dvvxplqj wkdw zhdowk frq0 vwudlqwv duh elqglqj durxqg d / d pxvw yhuli| W W % ] W & d ^4 I +d ,` @ W 4 W 4 W 43 4 I +d , W d . 4 I +d , W dgI +d, .5d = +:, f Htxdwlrq +:, vxppdul}hv wkh jurxs vl}h sdudgr{/ wudglqj r h{0srvw frp0 shwlwlrq +ohiw0kdqg vlgh, dqg h{0dqwh frqwulexwlrq ohyhov +uljkw0kdqg vlgh,1 Wkh ohiw0kdqg vlgh ri htxdolw| +:, lv wkh djjuhjdwh ehqhw zkhq wkh pdu0 jlqdo lqvlghu lv h{foxghg iurp wkh frdolwlrq= dv h{0srvw frpshwlwlrq lv gh0 fuhdvhg/ surwv duh pdujlqdoo| lqfuhdvhg iru hdfk uhpdlqlqj lqvlghu1 Wkh uljkw0kdqg vlgh ri +:, lv wkh wrwdo frvw ri hylfwlqj wkh pdujlqdo lqvlghu1 Wkh uvw wzr hohphqwv duh wkh frvwv lqfxuuhg e| wkh lqvlghuv rq wkh lqwhqvlyh pdu0 jlq= vxfk frvw lv wkh dgglwlrqdo sd|phqw qhfhvvdu| wr zlq wkh elg djdlqvw wkh rxwvlghu +l1h1 d / wkh pdujlqdo lqvlghu*v zhdowk, dqg wkh rssruwxqlw| W frvw dv wkh pdujlqdo lqvlghu zloo qrw frqwulexwh dq| pruh/ vxfk orvv ehlqj UdW 3IEd f W dgI +d,1 Zkhq wkh djjuhjdwh zhdowk frqvwudlqw lv elqglqj/ wkh Odjudqjh pxowlsolhu lv srvlwlyh vr wkdw hylfwlqj wkh pdujlqdo lqvlghu kdv d frvw rq wkh h{whqvlyh pdujlq/ zklfk frqvlvwv ri wkh h{wud hylfwlrq frvw d W dqg wkh srwhqwldo orvv lq frqwulexwlrq dovr htxdo wr d 1 Wkh vkdgrz ydoxh W ri wkh pdujlqdo lqvlghu lqfuhdvhv zlwk khu zhdowk dv vkh lv pruh olnho| wr ehfrph slyrwdo1 Wkxv/ wkh surw ixqfwlrq +=, dqg wkh zhdowk glvwulexwlrq I +=, ghwhuplqh wkh vl}h ri wkh hqwu| eduulhuv1 Zkhq sulfhv duh pruh vhqvlwlyh wr rxwsxw/ lqfhqwlyhv wr hylfw pruh hqwuhsuhqhxuv duh kljkhu1 Pruh lpsru0 wdqwo|/ wkh zhdowk glvwulexwlrq dhfwv wkh wudgh0r ghvfulehg lq +:, lq wzr zd|v= lw dhfwv wkh ohyho ri h{0srvw frpshwlwlrq +ohiw0kdqg vlgh ri +:,, dqg lw dovr dhfw wkh h{0dqwh frqwulexwlrq vfkhgxoh +uljkw0kdqg vlgh,1 Wkxv/ pruh frqfhqwudwhg zhdowk pdnhv vpdoo frdolwlrqv pruh zloolqj dv zhoo dv pruh deoh wr fuhdwh odujh eduulhuv wr hqwu|1 7 G|qdplfv Wkh prgho qhhg wr eh h{whqghg wr dqdo|}h wkh ehkdylru ri wkh hfrqrp| lq d g|qdplf iudphzrun1 Iru w @ 4>===/ hdfk jhqhudwlrq sod|v wkh vwdwlf jdph ghvfulehg deryh dqg dw wkh hqg ri wkh shulrg/ lqvwhdg ri frqvxplqj doo wkhlu zhdowk/ lqglylgxdov fdq fkrrvh ehwzhhq frqvxpswlrq dqg ehtxhvwv wr rqh dqg rqo| rqh rvsulqj1 Lw lv dvvxphg wkdw lqglylgxdov lq hdfk jhqhudwlrq 43Wkh qrwdwlrq E fruuhvsrqgv wr n 3 E zkhuh lv wkh vl}h ri d frdolwlrq n wkdw frqwdlqv rqh dgglwlrqdo phpehu frpsduhg wr d frdolwlrq ri vl}h = 48 kdyh wkh iroorzlqj wlph0lqyduldqw xwlolw|=44 ;w 4> Xl fwl>ewl @ fwl w 3 ewl > zkhuh fwl lv lqglylgxdo l v frqvxpswlrq dqg ewl lv wkh ohyho ehtxhdwkhg wr l v rvsulqj lq jhqhudwlrq w1 Dq lpphgldwh lpsolfdwlrq ri wklv vshflfdwlrq lv wkdw d iudfwlrq ri lqglylgxdo l v zhdowk lv wudqvihuuhg wr wkh qh{w jhqhudwlrq1 Orqj0uxq uhvxowv zloo eh ghulyhg zlwk uhvshfw wr wkh rz Iw +=,/ zkhuh Iw +=, lv jhqhudwlrq0w glvwulexwlrq ri zhdowk1 Wkh g|qdplfv ri wkh zhdowk glvwulexwlrq duh jryhuqhg e|= ;l 5 L>;w 4 + q r +dw , . dwl W UdWw li dwl dw W dwl @ n 4 IwEdw f 3 W dgIw +d, > z . dwl Iw rwkhuzlvh zkhuh dw lv ghwhuplqhg e| +:, zkhq wkh zhdowk glvwulexwlrq frqvlghuhg lv W Iw +=,1 Qrwh wkdw wkh nqrzohgjh ri Iw +=, ghwhuplqhv frpsohwho| wkh wudqvl0 wlrq ri wkh hfrqrp| iurp jhqhudwlrq w wr jhqhudwlrq w . 4= 714 Vwhdg| Vwdwhv dqg Orfdo Vwdelolw| Dv d uvw h{dpsoh/ ohw*v orrn dw wkh fdvh zkhuh qr eulelqj rffxuv= Wkhq iru dq| g|qdvw| l 5 L> wkh zhdowk surfhvv dwl w MD lv d Pdunry surfhvv zlwk vwdwlrqdu| wudqvlwlrqv= ;l 5 L>;w 4> l L dwl @ +4, . dwl = n Lq wkh orqj0uxq/ doo lqglylgxdov iroorz d wudmhfwru| dv vkrzq lq jxuh 9 vr wkdw wkh| hqg xs zlwk wkh vdph zhdowk ohyho htxdo wr d +4, " 4 +4, = Wkh iroorzlqj ohppd irupdol}hv wklv uhvxow= Ohppd 43 Zkhq wkh exuhdxfudw grhv qrw wdnh eulehv/ wkh glvwulexwlrq I +d, 4td?d 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suhqhxuv lqfuhdvhv1 Wklv dvvxpswlrq lv vx!flhqw wr jhqhudwh wkh iroorzlqj vwdelolw| uhvxow= Sursrvlwlrq 45 Xqghu dvvxpswlrq D9/ wkhuh h{lvwv dq rshq qhljkerukrrg E ri 2 dqg dq rshq qhljkerukrrg Z ri 3 vxfk wkdw/ iru dq| +>z, 5 E Z> wkhuh h{lvwv % 5 ^3>4`/ vxfk wkdw wkh glvwulexwlrq I +=, lv d vwhdg| vwdwh li dqg rqo| li 5 i3j ^ ^4 %>4`1 Ixuwkhupruh/ iru dq| 5 i3j ^ +4 %>4`> I +=, lv dv|pswrwlfdoo| vwdeoh145 Zkhq z lv vpdoo hqrxjk/ zkhwkhu vrph ydoxhv fdq eh dvvrfldwhg zlwk d glvwulexwlrq I +=, wkdw lv d vwhdg| vwdwh/ ghshqgv rq wkh vkdsh ri wkh ghpdqg ixqfwlrq +=,/ zklfk ghwhuplqhv wkh pdujlqdo frvw ri dq h{wud rxw0 vlghu dqg lv phdvxuhg e| +:,= Dvvxpswlrq D9 lpsolhv prqrwrqlflw| lq wkh 45Dq lqwhuydo Ed> eo frqwdlqv e exw qrw d= 4: pdujlqdo ehqhw ri d pdujlqdo h{foxvlrq1 Wkxv/ li I +=, lv d vwhdg| vwdwh iru vrph / wkhq lw lv d vwhdg| vwdwh iru dq| odujhu 1 Iru orz ydoxhv ri / wkh ehqhwv ri ixuwkhu h{foxvlrq duh kljk vr wkdw fruuhvsrqglqj olplwlqj glvwulexwlrqv fdqqrw eh vwhdg| vwdwhv1 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wkh judqg frdolwlrq/ wkhq lq ixwxuh shulrgv/ wkh uhodwlyh zhdowk jds ehwzhhq srru dqg ulfk lqglylgxdov kdv qduurzhg vr wkdw wkh judqg frdolwlrq uhpdlqv wkh htxloleulxp rxwfrph1 Rq wkh rwkhu kdqg/ li d jhqhudwlrq h{klelwv dq htxl0 oleulxp frdolwlrq vl}h ehorz vrph wkuhvkrog/ vxfk frdolwlrq zloo vkulqn lq doo vxevhtxhqw shulrgv dqg wkh glvwulexwlrq frqyhujhv wr If +=,1 Wkh lqwxlwlrq lv vlplodu wr wkh suhylrxv fdvh1 Zkhq wkh zhdowk jds ehwzhhq lqvlghuv dqg rxwvlghuv zlghqv/ wkhq frdolwlrqv duh vkulqnlqj ryhu wlph wrzdug wkh vl}h }hur vwhdg| vwdwh1 715 Frqyhujhqfh= Vlpxodwlrq Dowkrxjk wkh suhylrxv sursrvlwlrqv fkdudfwhul}hg vx!flhqw frqglwlrqv iru wkh h{lvwhqfh ri d vwhdg|0vwdwh glvwulexwlrq/ olwwoh kdv ehhq vdlg derxw frq0 yhujhqfh dv f|fohv fdqqrw eh uxohg rxw1 Wklv lvvxh lv frpprq wr prghov ri wklv fodvv146 Wkxv/ wkh suhvhqw sdudjudsk sursrvhv wr vlpxodwh wkh g|qdplf ehkdylru ri wkh hfrqrp| lq d vlpsoh iudphzrun1 Frqvlghulqj d srsxodwlrq ri 433 lqglylgxdov/ hdfk djhqw lv hqgrzhg zlwk d ohyho ri zhdowk wkdw fdq eh hlwkhu kljk +dK, ru orz +dO ? dK,= Wkxv/ hfrqrplhv glhu rqo| e| wkh lqlwldo shufhqwdjh ri srru lqglylgxdov1 Irxu fdvhv duh vlpxodwhg udqjlqj iurp orz ohyhov ri lqlwldo lqhtxdolw| +8( ri wkh srsxodwlrq kdv zhdowk dO, wr kljk ohyhov ri lqlwldo lqhtxdolw| +wkh udwlr lv wkhq 73(,1 Wkh lqwhuphgldwh fdvhv/ phglxp orz dqg phglxp kljk ohyhov ri lqlwldo lqhtxdolw|/ fruuhvsrqg wr 43( dqg 48( ri srru lqglylgxdov uhvshfwlyho|1 Wkh uhvxowv ri wkh vlpxodwlrq duh vkrzq lq jxuh ;147 Zkloh wkh krul}rqwdo d{lv lv wkh wlph olqh/ wkh yhuwl0 fdo d{lv phdvxuhv wkh vl}h ri zlqqlqj frdolwlrqv w dw hdfk jhqhudwlrq1 Iru h{dpsoh/ 433( dw jhqhudwlrq w phdqv wkdw wkh judqg frdolwlrq iruphg dw 46Iru h{dpsohv ri qrq0olqhdu Pdunry surfhvvhv lq vlplodu vlwxdwlrqv/ vhh Edqhumhh dqg Qhzpdq +4<<4,/ Djklrq dqg Erowrq +4<<:, ru Slnhww| +4<<:,1 47Wkh ghpdqg ixqfwlrq kdv ehhq vshflhg dv EN ' D 3 N zlwk sdudphwhu ydoxhv d ' =D> d ' f> D ' 2fff> ' = > ' =e dqg z ' =2= Wkh vfdoh deryh 43( kdv ehhq O 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p q @ > ilj p > B > p r lM7 dqg wkh vhfrqg sduw vkrzv wkdw irupv lq dq| htxloleulxp1 Sduw 4= lv fkdudfwhul}hg e| wkh zhdowk frqvwudlqw frqglwlrq/ l1h1 p p [ q k lr [ plq d > +4, A d =4: lMp l p P lM7p l Slfn dq| l 5 >li p l p wkhq [ plq d > d mMl l l L [ + , +4, m[l M l l[ M7pd l ? d lMp l vr wkdw fdqqrw eh d zlqqlqj frdolwlrq1 Wkxv lw pxvw eh wkh fdvh wkdw l _ 9@ B> l p 4:Wkh sduwlfxodu fdvh ri vwulfw lqhtxdolw| lv uxohg rxw dv qrq0jhqhulf1 55 zklfk lpsolhv wkdw dq| frdolwlrq vwuxfwxuh pxvw kdyh wkh vlqjohwrq ilj= Sduw 5= Vx!flhqw frqglwlrq= p lv wkh suhihuuhg frdolwlrq dqqrxqfhphqw iru doo phpehuv ri = Ixuwkhupruh/ dv vkrzq lq Sduw 4/ li irupv/ wkhq zloo eh wkh olfhqvlqj ghflvlrq ri wkh exuhdxfudw1 D edfnzdug lqgxfwlrq p p p dujxphqw pdnhv wkh srlqw= li l lv wkh odvw phpehu ri wr pdnh dq rhu/ p wkhq lq wkh vxejdph zkhuh hyhu| suhylrxv phpehu kdv dqqrxqfhg / lw lv d vwulfwo| grplqdwlqj vwudwhj| iru l wr dqqrxqfh = Frqvlghu wkh vxejdphv zkhuh hyhu| phpehu diwhu m 5 > m ehlqj wkh n p 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= Wkxv/ fkrrvlqj % vr wkdw iru @ 4 %/ lqhtxdolw| +48, krogv iru dq| 4> exw krogv zlwk htxdolw| iru vrph 4> wkhq wkh prqrwrqlflw| surshuw| ri EE lqgxfhg e| dvvxpswlrq D9 lpsolhv wkdw +, ; 4>4 . +4 , +4 , +, li dqg rqo| li 4 %= % 4 lv rewdlqhg iru vrph ydoxhv ri lq dq rshq edoo fhqwhuhg durxqg = 2 Ilqdoo|/ lw lv hdv| wr yhuli| wkdw i3j lv d vwhdg| vwdwh iru orz hqrxjk ydoxhv ri z= Frqvlghu qrz vr wkdw I +=, lv d vwhdg| vwdwh1 Wkhq d qhfhvvdu| frqglwlrq lv wkdw hylfwlrq rffxuv dw hdfk shulrg= +4 ,d plqd +, > +, " " +4, = +49, Pruhryhu +47, lv qhfhvvdu| iru wkh urexvwqhvv ri wkh frdolwlrq/ l1h1 wkhuh lv qr lqfhqwlyh wr hylfw ixuwkhu lqvlghuv= 4 @ duj pd{ +, 4 $ d " +, +4:, Iru orz hqrxjk ydoxhv ri z/ +49, krogv vwulfwo|/ vr wkdw iru dq| vpdoo shu0 wxuedwlrq rq wkh zhdowk glvwulexwlrq +49, vwloo krogv1 Pruhryhu/ dv 4 % lv ghqhg dv wkh plqlpxp ydoxh ri vr wkdw +4:, krogv1 Wkxv/ iru dq| A 4 %> +4:, krogv vwulfwo|1 Vlploduo|/ vpdoo shuwxuedwlrqv rq wkh zhdowk glvwulexwlrq gr qrw fkdqjh wkh rxwfrph ri +4:,= Wkhq/ iru A 4 %> I +=, lv dv|pswrwlfdoo| vwdeoh1 Surri ri Sursrvlwlrq 46 Vxssrvh wkdw iru vrph w 4> L lv wkh htxloleulxp frdolwlrq vr wkdw L @ duj pd{ + , 4 VwM3SVw7LDf E Vw7 Wkhq iru dq| 5 S +L,> wkh zhdowk wudqvlwlrq lpsolhv wkdw V wn wn w w V7 V V7 vr wkdw 5 S +L,>V wn wn V7 5 S +L,>V w w V7 57 dqg frqvhtxhqwo|/ L @ duj 4 Vwn3Vw7nDf pd{EL MS + , Vw7n Surri ri Sursrvlwlrq 47= Vxssrvh wkdw iru vrph w 4> wlv wkh htxloleulxp frdolwlrq vr wkdw w @ duj pd{ + , 4 VwM3SVw7LDf E Vw7 dqg K > w W zkhuh + , W W +4 ,z W 4 +4, z = Frqglwlrq +44, jxdudqwhhv h{lvwhqfh ri vxfk = Xqghu frqglwlrq +43,/ W VK7 VK7 wn w dqg ixuwkhupruh/ iru dq| 5 S +L,> li > wkhq + , +4 ,z 4 +4, z vr wkdw Vwn wn w w V7 V V7= Wklv lpsolhv wkdw li wn 5 S +L, lv wlph w . 4 htxloleulxp frdolwlrq/ wkhq/ e| ghqlwlrq/ K K wn w dqg xqghu frqglwlrq +45, K = wn W Wklv frpsohwhv wkh lqgxfwlrq dujxphqw1 Wkxv/ iru dq| vhtxhqfh ri htxlole0 ulxp frdolwlrq vl}hv K w wD vxfk wkdw wkhuh h{lvwv w 4/ vxfk wkdw K > w lv qrq lqfuhdvlqj diwhu w= Ghqrwlqj e| +,> @ lqi 5 ^3>4`>< 5 ^3>4`>4 . WW 4 4 ? +, 58 frqglwlrq +46, jxdudqwhhv h{lvwhqfh ri vxfk WWdqg wkh vwdelolw| surshuw| ghulyhg suhylrxvo| lpsolhv wkdw A 3= Wkxv/ ghqlqj WW @ plqi > j>W WW dq| frdolwlrq vl}h rz vxfk wkdw wkhuh h{lvwv w 4 zkhuh K > w wkhq qhfhvvdulo| frqyhujhv wr 3> vr wkdw wkh fruuhvsrqglqj rz +I , w wD/ frqyhujhv wr If +=,= 59 Uhihuhqfhv ^4` Dfhprjox/ Gdurq/ Vlprq Mrkqvrq/ dqg Mdphv Urelqvrq +5334,/ Wkh Frorqldo Ruljlqv ri Frpsdudwlyh Ghyhorsphqw= Dq Hpslulfdo Lqyhvwl0 jdwlrq/ Wkh Dphulfdq Hfrqrplf Uhylhz/ <4 / 469<047341 ^5` Dfhprjox/ Gdurq/ dqg Wklhuu| Yhuglhu +5333,/ Wkh Fkrlfh ehwzhhq Pdunhw Idloxuhv dqg Fruuxswlrq/ Wkh Dphulfdq Hfrqrplf Uhylhz Sd0 shuv dqg Surfhhglqjv/ <3/ 4<70544 ^6` Djklrq/ Sklolssh dqg Sdwulfn Erowrq +4<<:,/ D Wkhru| ri Wulfnoh0 Grzq Jurzwk dqg Ghyhorsphqw/ Wkh Uhylhz ri Hfrqrplf Vwxglhv/ 97/ 48404:51 ^7` Dohvlqd/ Doehuwr dqg Gdql Urguln +4<<7,/ Glvwulexwlyh Srolwlfv dqg Hfrqrplf Jurzwk/ Wkh Txduwhuo| Mrxuqdo ri Hfrqrplfv/ 43 Sxeolf Jrrgv dqg wkh Wkhru| ri Jurxsv/ +Fdpeulgjh/ Q\= Fdpeulgjh Xqlyhuvlw| Suhvv,1 ^58` Sduhqwh/ Vwhskhq dqg Hgzdug Suhvfrww +5333,/ Eduulhuv wr Ulfkhv/ +Fdpeulgjh/ PD= PLW Suhvv,1 ^59` Shuvvrq/ Wruvwhq dqg Jxlgr Wdehoolql +4<<7,/ Lv Lqhtxdolw| Kdupixo iru Jurzwk/ Wkh Dphulfdq Hfrqrplf Uhylhz/ ;7/ 93309541 ^5:` Slnhww|/ Wkrpdv +4<<:,/ Wkh G|qdplfv ri wkh Zhdowk Glvwulexwlrq dqg wkh Lqwhuhvw Udwh zlwk Fuhglw Udwlrqlqj/ Wkh Uhylhz ri Hfrqrplf Vwxglhv/ 97/ 4:604;<1 ^5;` Slnhww|/ Wkrpdv +5333,/ Wkhrulhv ri Shuvlvwhqw Lqhtxdolw| dqg Lq0 whujhqhudwlrqdo Prelolw|/ lq Kdqgerrn ri Lqfrph Glvwulexwlrq yro14/ Dwnlqvrq D1 dqg Erxujxljqrq I1/ hgv1 +Dpvwhugdp= Qruwk0Kroodqg,1 ^5<` Vwljohu/ Jhrujh +4<:4,/ Wkh Wkhru| ri Hfrqrplf Uhjxodwlrq/ Wkh Ehoo Mrxuqdo ri Hfrqrplfv dqg Pdqdjhphqw Vflhqfh/ 5/ 60541 5< 35.000 Japan Singapore 30.000 Hong Kong 25.000 (1995) ati 20.000 cap rep 15.000 Taiwan P 10.000 Korea GD 5.000 Malaysia Thailand Indonesia Philippines 0.000 0 1 2 3 4 5 6 7 8 9 Corruption Index Iljxuh 4= Fruuxswlrq Lqgh{ dqg JGS 0 Vrxufh= Od Sruwd hw do +4<<;, 9 Japan Hong Kong Singapore 8 Malaysia 7 Taiwan xed 6 In Korea Thailand n 5 iotpurro 4 3 Philippines C 2 Indonesia 1 0 0 10 20 30 40 50 60 70 Family Control Iljxuh 5= Fruuxswlrq dqg Zhdowk Frqfhqwudwlrq 0 Vrxufh= Fodhvvhqv hw do +4<<;, 63 T = 0 T = 1 T = 2 Licensing Supply of capital Final Production Consumption Iljxuh 6= Wlph olqh Coalition Coalition Bargaining over Licensing Formation Choice Contributions Decision 1. Nature decides the The bureaucrat Round 1: order of picks one 1.A. Nature decides the announcements coalition from order of announcements 2. Agents the coalition 1.B. Agents sequentially sequentially structure announce a contribution announce a coalition schedule 3. The coalition Consensus? structure forms YES NO The bureaucrat chooses between Round 2: allowing and 2.A. Nature decides the deterring entry. order of announcements 2.B. Agents sequentially announce a contribution schedule Consensus? YES NO Zero-contribution schedule Iljxuh 7= Iurp Frdolwlrq Irupdwlrq wr Olfhqvlqj Ghflvlrq 64 contributions C A B A B C Kmin Kmax K Entry due to ex-ante wealth constraints Entry is deterred Entry due to ex-post competition Iljxuh 8= Wkh Jurxs Vl}h Sdudgr{ 65 45q at+1 af(1) at Iljxuh 9= Zhdowk g|qdplfv 0 qr0fruuxswlrq fdvh 66 at+1 Institutional Change Institutional Trap af af(K) at Iljxuh := Zhdowk g|qdplfv 0 jhqhudo fdvh 67 Iljxuh ;= Zhdowk g|qdplfv 0 vlpxodwlrq 68