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A political economy model of market intervention

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  • Francisco Candel-Sánchez
  • Juan Perote-Peña

Abstract

We argue that political competition based on income redistribution à la Lindbeck and Weibull (Public Choice 52:273–297, 1987 ) may cause distortive regulation in a competitive sector. For this purpose, we propose a model in which imposing a production quota allows the extraction of rents that are then used for vote-buying purposes. Our model permits us to analyze the response of regulatory policy to political factors, such as the size of a group of informed voters and the accuracy of their information about the incumbent. We also show that the extent of voter influence on policy outcomes is shaped by the state of market demand. In particular, if demand becomes weaker, market intervention increases in a magnitude that depends positively on the electoral weight of informed voters. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Francisco Candel-Sánchez & Juan Perote-Peña, 2013. "A political economy model of market intervention," Public Choice, Springer, vol. 157(1), pages 169-181, October.
    • Handle: RePEc:kap:pubcho:v:157:y:2013:i:1:p:169-181
    DOI: 10.1007/s11127-012-9933-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Regulatory policy; Political competition; D72; D82; D86; G38; L51;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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