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Markets and jungles

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  • Thomas Gall
  • Paolo Masella

Abstract

Economic institutions determine prospects for growth and development. This paper examines necessary conditions for an economy to support institutions that implement markets. Agents differ in land holdings, skill, and power. A competitive market assigns land to the skilled, not necessarily to the powerful. Therefore a market allocation needs to be robust to coalitional expropriation. In a dynamic setting, market payoffs may induce sufficient inequality in next period's endowments for markets to alternate with expropriation in a limit cycle, decreasing efficiency and amplifying macroeconomic fluctuations. Long run stability of markets is favored by higher social mobility, more initial equality, and less mismatch between demand and supply.
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  • Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
  • Handle: RePEc:kap:jecgro:v:17:y:2012:i:2:p:103-141
    DOI: 10.1007/s10887-011-9076-z
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    1. Falkinger, Josef & Grossmann, Volker, 2013. "Oligarchic land ownership, entrepreneurship, and economic development," Journal of Development Economics, Elsevier, vol. 101(C), pages 206-215.

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    More about this item

    Keywords

    Expropriation; Market institutions; Inequality; Growth; Fluctuations; Coalition formation; E02; O43; C71;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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