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Markets and jungles

  • Thomas Gall

    ()

  • Paolo Masella

    ()

Institutions affect prospects for economic growth and development. In this paper a condition on the primitives determines whether an economy supports markets. Agents differ in land holdings, skill, and power. A competitive market assigns land efficiently to the skilled, not necessarily to the powerful. Therefore a market allocation needs to be stable with respect to coalitional expropriation. More equally distributed power and higher congruence of land and power favor stable markets. In a dynamic setting, we identify conditions that ascertain whether markets are stable forever, or alternate with expropriation in a limit cycle, decreasing efficiency and amplifying macroeconomic fluctuations.

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File URL: http://hdl.handle.net/10.1007/s10887-011-9076-z
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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 17 (2012)
Issue (Month): 2 (June)
Pages: 103-141

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Handle: RePEc:kap:jecgro:v:17:y:2012:i:2:p:103-141
DOI: 10.1007/s10887-011-9076-z
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