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Markets and Jungles

  • Thomas Gall

    ()

    (University of Bonn)

  • Paolo Masella

    ()

    (Dept. of Economics, University of Mannheim, Germany)

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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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-187.

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Length: 38
Date of creation: Feb 2009
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Handle: RePEc:bos:iedwpr:dp-187
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