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Markets and Jungles

Author

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  • Thomas Gall

    (University of Bonn)

  • Paolo Masella

    (Dept. of Economics, University of Mannheim, Germany)

Abstract

Institutions affect prospects for economic growth and development. In this paper a condition on the primitives determines whether an economy supports markets. Agents differ in land holdings, skill, and power. A competitive market assigns land efficiently to the skilled, not necessarily to the powerful. Therefore a market allocation needs to be stable with respect to coalitional expropriation. More equally distributed power and higher congruence of land and power favor stable markets. In a dynamic setting, we identify conditions that ascertain whether markets are stable forever, or alternate with expropriation in a limit cycle, decreasing efficiency and amplifying macroeconomic fluctuations.

Suggested Citation

  • Thomas Gall & Paolo Masella, 2009. "Markets and Jungles," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-187, Boston University - Department of Economics.
    • Handle: RePEc:bos:iedwpr:dp-187
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    More about this item

    Keywords

    Expropriation; consistent set; inequality; volatility;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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