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Asymmetric Information and Inefficient Regulation of Firms Under the Threat of Revolution

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  • Paul Maarek
  • Michael Dorsch
  • Karl Dunz

    ()
    (THEMA, Universite de Cergy-Pontoise and THEMA
    The American University of Paris
    The American University of Paris)

Abstract

This paper considers the role of asymmetric information in a political agency theory of autocratic economic policy-making. Within the context of a static game, we analyze the strategic interaction between a self-interested elite ruling class, who may extract rent ineciently through hidden regulations, and an imperfectly informed disenfranchised class, who may choose to revolt. In various models, we identify the Perfect Bayesian Equilibrium (PBE), which we describe in terms of the economy's level of development potential. One model has two-sided uncertainty and a cost of regulation. This model has a PBE such below a threshold development level the elite chose inecient regulation and above the threshold development level the elite chose the ecient policy. A further extension where the elite own assets allows for a voluntarily transition to democracy.

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Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2012-42.

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Date of creation: 2012
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Handle: RePEc:ema:worpap:2012-42

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Keywords: Political transition; Revolution; Asymmetric information; Perfect Bayesian equilibrium;

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  1. Paul Maarek & Michael Dorsch & Karl Dunz, 2012. "Macro Shocks, Regulatory Quality and Costly Political Action," THEMA Working Papers 2012-41, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  3. Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
  4. Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000. "The Regulation of Entry," NBER Working Papers 7892, National Bureau of Economic Research, Inc.
  5. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  6. Daron Acemoglu, 2010. "Institutions, Factor Prices and Taxation: Virtues of Strong States?," NBER Working Papers 15693, National Bureau of Economic Research, Inc.
  7. Susanne Lohmann, 2010. "Information Aggregation Through Costly Political Action," Levine's Working Paper Archive 197, David K. Levine.
  8. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  9. Acemoglu, Daron & Ticchi, Davide & Vindigni, Andrea, 2008. "A Theory of Military Dictatorships," IZA Discussion Papers 3392, Institute for the Study of Labor (IZA).
  10. Paul Maarek & Michael Dorsch, 2012. "Inefficient Predation, Information, and Contagious Institutional Change," THEMA Working Papers 2012-32, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  11. Filipe R. Campante & Davin Chor, 2012. "Why Was the Arab World Poised for Revolution? Schooling, Economic Opportunities, and the Arab Spring," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 167-88, Spring.
  12. Lohmann, Susanne, 1994. "Information Aggregation through Costly Political Action," American Economic Review, American Economic Association, vol. 84(3), pages 518-30, June.
  13. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  14. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  15. Timur Kuran, 1989. "Sparks and prairie fires: A theory of unanticipated political revolution," Public Choice, Springer, vol. 61(1), pages 41-74, April.
  16. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
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Cited by:
  1. Paul Maarek & Michael Dorsch & Karl Dunz, 2012. "Macro Shocks, Regulatory Quality and Costly Political Action," THEMA Working Papers 2012-41, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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