Political intervention in economic activity
This paper proposes a political economy explanation of bailouts to declining industries. A model of probabilistic voting is developed, in which two candidates compete for the vote of two groups of the society through tactical redistribution. We allow politicians to have core support groups they understand better, this implies politicians are more or less effective to deliver favors to some groups. This setting is suited to reproduce pork barrels or machine politics and patronage. We use this model to illustrate the case of an economy with both an efficient industryand a declining one, in which workers elect their government. We present the conditions under which the political process ends up with the lagged-behind industry being allowed to survive.
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- James A. Robinson & Ragnar Torvik, 2006.
"A Political Economy Theory of the Soft Budget Constraint,"
NBER Working Papers
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- James A. Robinson & Ragnar Torvik, 2005. "A Political Economy Theory of the Soft Budget Constraint," Working Paper Series 5605, Department of Economics, Norwegian University of Science and Technology.
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0019, Institute for Advanced Study, School of Social Science.
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- J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
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