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Dynamic Stability and Reform of Political Institutions

  • Roger Lagunoff

This paper studies dynamic, endogenous institutional change. We introduce the class of dynamic political games (DPGs), dynamic games in which future political aggregation rules are decided under current ones, and the resulting institutional choices do not affect payoffs or technology directly. A companion paper (Lagunoff (2005b)) establishes existence of Markov Perfect equilibria of dynamic political games. The present paper examines issues of stability and reform when such equilibria exist. Which environments tend toward institutional stability? Which tend toward reform? We show that when political rules are dynamically consistent and private sector decisions areinessential,reform never occurs: all political rules are stable. Roughly,private sector decisions are inessential if any feasible ``social' continuation payoff can achieved by public sector decisions alone. More generally, we identify sufficient conditions for stability and reform in terms of recursive self selection and recursive self denial,incentive compatibility concepts that treat the rules themselves as ``players' who can strategically delegate future policy-making authority to different institutional types. These ideas are illustrated in an example of dynamic public goods provision.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000051.

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Date of creation: 27 Oct 2006
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Handle: RePEc:cla:levrem:784828000000000051
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  24. Manuel Amador, 2004. "A Political Model Sovereign Debt Repayment," 2004 Meeting Papers 762, Society for Economic Dynamics.
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