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Knowing The Right Person In The Right Place: Political Connections And Resistance To Change

Listed author(s):
  • Giorgio Bellettini
  • Carlotta Berti Ceroni
  • Giovanni Prarolo

We use a political economy model of Schumpeterian growth with entry to investigate how an incumbent politician can strategically use the level of red tape to acquire incumbency advantage. By setting sufficiently high red tape, the politician induces the incumbent firm in the intermediate sector to invest in political connections, which are valued also by voters, who recognize that bureaucratic costs can be reduced by connected firms. Within this framework, we study the Markov perfect equilibria of an infinitely repeated game among politicians, firms, and voters, and show that all equilibria are characterized by investments in political connections and the re-election of the incumbent politician. Political connections may prevent entry of advanced competitors and cause the economy to lag behind the technological frontier. Our model provides a possible explanation for the persistence of inefficient democracies and political barriers to technology development, where these reflect shared rather than conflicting interests.

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File URL: http://hdl.handle.net/10.1111/jeea.12069
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 12 (2014)
Issue (Month): 3 (June)
Pages: 641-671

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Handle: RePEc:bla:jeurec:v:12:y:2014:i:3:p:641-671
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  1. Giorgio Bellettini & Gianmarco I. P. Ottaviano, 2005. "Special Interests and Technological Change," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 43-56.
  2. Massimiliano Landi & Antonio Merlo & Vincenzo Galasso & Andrea Mattozzi, 2008. "The Labor Market of Italian Politicians," Labor Economics Working Papers 22461, East Asian Bureau of Economic Research.
  3. repec:cup:apsrev:v:100:y:2006:i:01:p:115-131_06 is not listed on IDEAS
  4. Boeri, Tito & Merlo, Antonio & Prat, Andrea (ed.), 2010. "The Ruling Class: Management and Politics in Modern Italy," OUP Catalogue, Oxford University Press, number 9780199588282.
  5. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
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