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A Theory of Political Influence and Economic Organization

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  • Luis Sanchez-Mier

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    (Department of Economics and Finance, Universidad de Guanajuato)

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    Abstract

    I propose a cooperative game theory model of economic reform in a political environment with interest groups. Agents in a better economic position have strategic advantage in formulating economic policy. Agents bargain over policies because they are associated with different income distributions. In this context I examine the robustness of the `Coase Theorem' prediction of efficient bargaining. I use the Aspiration Core and the Aspiration Bargaining Set as solutions to the cooperative game. Even under zero transaction costs, if endogenous coalition formation is allowed, bargaining between interest groups need not result in efficient economic change because the core may be empty. Indeed, I show that there are inefficient equilibrium outcomes if and only if the core is empty.

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    File URL: http://economia.ugto.org/WorkingPapers/EC200504.pdf
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    Bibliographic Info

    Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC200504.

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    Length: 30 pages
    Date of creation: Jan 2005
    Date of revision:
    Handle: RePEc:gua:wpaper:ec200504

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    Postal: UCEA-Campus Marfil, Fracc. I, El Establo, Guanajuato GTO 36250
    Phone: [+52 473] 735 2925 x-2925
    Fax: [+52 473] 735 2925 x-2925
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    Web page: http://economia.ugto.org/
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    Related research

    Keywords: Political Economy; Interest Groups; Institutional Change; Coalition Formation; Cooperative Games; Aspiration Solution Concepts;

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    References

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    1. Vega-Redondo, F., 1990. "Technological Change and Institutional Inertia; A Co-Evolutionary Model with Two Hierarchical Levels," UFAE and IAE Working Papers 146.90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Philip J. Reny & Eyal Winter & Myrna Wooders, 2009. "The Partnered Core of a Game with Side Payments," Vanderbilt University Department of Economics Working Papers 0917, Vanderbilt University Department of Economics.
    3. Bennett, Elaine & Zame, William R, 1988. "Bargaining in Cooperative Games," International Journal of Game Theory, Springer, vol. 17(4), pages 279-300.
    4. Aivazian, Varouj A & Callen, Jeffrey L & Lipnowski, Irwin, 1987. "The Coase Theorem and Coalitional Stability," Economica, London School of Economics and Political Science, vol. 54(216), pages 517-20, November.
    5. Rodrik, Dani, 1993. "The Positive Economics of Policy Reform," American Economic Review, American Economic Association, vol. 83(2), pages 356-61, May.
    6. Aivazian, Varouj A & Callen, Jeffrey L, 1981. "The Coase Theorem and the Empty Core," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 175-81, April.
    7. Vega-Redondo, Fernando, 1993. "Technological Change and Institutional Inertia: A Game-Theoretic Approach," Journal of Evolutionary Economics, Springer, vol. 3(3), pages 199-224, August.
    8. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
    9. Jingang Zhao, 2001. "The relative interior of the base polyhedron and the core," Economic Theory, Springer, vol. 18(3), pages 635-648.
    10. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March.
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