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A Theory of Political Influence and Economic Organization

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Author Info
Luis Sanchez-Mier () (School of Economics, Universidad de Guanajuato)
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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Paper provided by Universidad de Guanajuato in its series School of Economics Working Papers with number EC200504.

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Handle: RePEc:gua:wpaper:ec200504

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Related research
Keywords: Political Economy Interest Groups Institutional Change Coalition Formation Cooperative Games Aspiration Solution Concepts.

Find related papers by JEL classification:
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

References listed on IDEAS
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  1. Bennett, Elaine & Zame, William R, 1988. "Bargaining in Cooperative Games," International Journal of Game Theory, Springer, vol. 17(4), pages 279-300.
  2. Reny,Philip Winter,Eyal Wooders,Myrna, . "The partnered core of a game with side payments," Discussion Paper Serie B 258, University of Bonn, Germany.
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  3. 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. [Downloadable!] (restricted)
  4. Rodrik, Dani, 1993. "The Positive Economics of Policy Reform," American Economic Review, American Economic Association, vol. 83(2), pages 356-61, May. [Downloadable!] (restricted)
  5. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July. [Downloadable!] (restricted)
  6. 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.
  7. 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. [Downloadable!] (restricted)
  8. 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).
  9. Aivazian, Varouj A & Callen, Jeffrey L, 1981. "The Coase Theorem and the Empty Core," Journal of Law & Economics, University of Chicago Press, vol. 24(1), pages 175-81, April.
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