Can Market Failure Cause Political Failure?
AbstractWe study how ineffciencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we nd that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.
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Bibliographic InfoPaper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 121.
Date of creation: 2013
Date of revision:
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More information through EDIRC
occupational choice; adverse selection; property rights; asset liquidation; po- litical failure; market failure;
Other versions of this item:
- Aney, Madhav & Ghatak, Maitreesh & Morelli, Massimo, 2011. "Can Market Failure Cause Political Failure," CEPR Discussion Papers 8533, C.E.P.R. Discussion Papers.
- Madhav S, Aney & Maitreesh Ghatak & Massimo Morelli, 2011. "Can Market Failure Cause Political Failure?," STICERD - Economic Organisation and Public Policy Discussion Papers Series 029, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-POL-2013-03-09 (Positive Political Economics)
- NEP-SEA-2013-03-09 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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