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Oligarchic Versus Democratic Societies

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Author Info
Daron Acemoglu

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Abstract

This paper develops a model to analyze economic performance under different political regimes. An oligarchic society, where political power is in the hands of major producers, protects their property rights, but also tends to erect significant entry barriers against new entrepreneurs. Democracy, where political power is more widely di used, imposes redistributive taxes on producers, but tends to avoid entry barriers. When taxes in democracy are high and the distortions caused by entry barriers are low, an oligarchic society achieves greater efficiency. Nevertheless, because comparative advantage in entrepreneurship shifts away from the incumbents, the inefficiency created by entry barriers in oligarchy deteriorates over time. The typical pattern is therefore one of rise and decline of oligarchic societies: of two otherwise identical societies, the one with an oligarchic organization will first become richer, but later fall behind the democratic society. I also discuss how democratic societies may be better able to take advantage of new technologies, how an oligarchic society might transition to democracy because of within-elite conflict, and how the unequal distribution of income in oligarchy supports the oligarchic institutions and may keep them in place even when they become significantly costly to society.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 47.

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Length: 57 pages
Date of creation: 2007
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Handle: RePEc:cca:wpaper:47

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Related research
Keywords: democracy; economic growth; entry barriers; oligarchy; political economy; redistribution; sclerosis.;

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Find related papers by JEL classification:
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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  1. Luis Angeles, 2008. "Democratization as a cost-saving device," Working Papers 2008_31, Department of Economics, University of Glasgow. [Downloadable!]
  2. Gacitua-Mario, Estanislao & Aasland, Sigrun & Nordang, Hakon & Wodon, Quentin, 2007. "Institutions, Social Networks, and Conflicts in Guinea-Bissau: Results from a 2005 Survey," MPRA Paper 11087, University Library of Munich, Germany. [Downloadable!]
  3. Cuberes, David & Jerzmanowski, Michal, 2008. "Democracy, Diversification, and Growth Reversals," MPRA Paper 11646, University Library of Munich, Germany. [Downloadable!]
  4. Thorsten Beck & Ross Levine & Alexey Levkov, 2007. "Big Bad Banks? The Impact of U.S. Branch Deregulation on Income Distribution," NBER Working Papers 13299, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Sergei Guriev & Konstantin Sonin, 2007. "Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights," Working Papers w0116, Center for Economic and Financial Research (CEFIR). [Downloadable!]
    Other versions:
  6. Francesco Caselli & Nicola Gennaioli, 2007. "Economics and Politics of Alternative Institutional Reforms," NBER Working Papers 12833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Barry, Boubacar-Sid & Gacitua-Mario, Estanislao & Wodon, Quentin, 2007. "Conflict, Livelihoods, and Poverty in Guinea-Bissau: An Overview," MPRA Paper 11115, University Library of Munich, Germany. [Downloadable!]
  8. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers 7080, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Kim, Se-Um, 2008. "The Technological Origins of the High School Movement," MPRA Paper 12087, University Library of Munich, Germany. [Downloadable!]
  10. Daniel Mejía & Carlos Esteban Posada, . "Populist Policies in the Transition to Democracy," Borradores de Economia 349, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  11. Russell Gerrard & Bjarne Højgaard & Elena Vigna, 2008. "Choosing the Optimal Annuitization Time Post Retirement," Carlo Alberto Notebooks 76, Collegio Carlo Alberto. [Downloadable!]
  12. Patricia Justino, 2007. "Carrot or stick? Redistributive transfers versus policing in contexts of civil unrest," HiCN Working Papers 33, Households in Conflict Network. [Downloadable!]
    Other versions:
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