A model of political enterprise
AbstractPolitical organizations engaged in long-term operations are viewed as firms that sell promises: their output is the expectation of a reorganization of society. Because benefits will accrue to the organization's customers and rewards will be paid out to its workers only if and when the goal is achieved, the workers are volunteers in the sense that they engage in unpaid effort today in exchange for a probabilistic reward tomorrow. Because a market for promises is the ideal ground for reciprocal cheating, some mechanisms to ensure reciprocal trust must be devised if exchange is to take place at all. Three problems of reciprocal trust are discussed: the firm's credibility vis-a'Ã‚Â -vis its workers, workers' shirking, and the firm's credibility vis-a'Ã‚Â -vis its customers. It is shown that a viable solution to these problems in effect turns the political firm into a kind of producer cooperative. It is then shown that the intrinsic inefficiency of a market made up of producer cooperatives makes merger likely, until a single firm remains. Then it is argued that these trust problems are further lessened if the firm undertakes commercial production on the side, with important consequences for its behavior: this is analyzed with a formal model of a two-product cooperative. These features of the political enterprise and industry are finally shown to account for a variety of observed facts of political life.
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Bibliographic InfoPaper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 9.
Length: 32 pages
Date of creation: Dec 1999
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Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-CDM-2004-09-30 (Collective Decision-Making)
- NEP-HPE-2004-09-30 (History & Philosophy of Economics)
- NEP-MIC-2000-02-07 (Microeconomics)
- NEP-POL-2004-09-30 (Positive Political Economics)
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- Carmichael, H Lorne, 1989. "Self-Enforcing Contracts, Shirking, and Life Cycle Incentives," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 65-83, Fall.
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