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Political intervention in economic activity

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  • Enrique Gilles

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Abstract

This paper proposes a political economy explanation of bailouts to declining industries. A model of probabilistic voting is developed, in which two candidates compete for the vote of two groups of the society through tactical redistribution. We allow politicians to have core support groups they understand better, this implies politicians are more or less effective to deliver favors to some groups. This setting is suited to reproduce pork barrels or machine politics and patronage. We use this model to illustrate the case of an economy with both an efficient industry and a declining one, in which workers elect their government. We present the conditions under which the political process ends up with the lagged-behind industry being allowed to survive.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 007180.

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Length: 36
Date of creation: 31 May 2010
Date of revision:
Handle: RePEc:col:000092:007180

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  1. J�nos Kornai & Eric Maskin & G�rard Roland, 2003. "Understanding the Soft Budget Constraint," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1095-1136, December.
  2. James A. Robinson & Ragnar Torvik, 2006. "A Political Economy Theory of the Soft Budget Constraint," NBER Working Papers 12133, National Bureau of Economic Research, Inc.
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