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Asymmetric Information and Inefficient Regulation of Firms Under the Threat of Revolution

  • Paul Maarek
  • Michael Dorsch
  • Karl Dunz

    ()

    (THEMA, Universite de Cergy-Pontoise and THEMA
    The American University of Paris
    The American University of Paris)

This paper considers the role of asymmetric information in a political agency theory of autocratic economic policy-making. Within the context of a static game, we analyze the strategic interaction between a self-interested elite ruling class, who may extract rent ineciently through hidden regulations, and an imperfectly informed disenfranchised class, who may choose to revolt. In various models, we identify the Perfect Bayesian Equilibrium (PBE), which we describe in terms of the economy's level of development potential. One model has two-sided uncertainty and a cost of regulation. This model has a PBE such below a threshold development level the elite chose inecient regulation and above the threshold development level the elite chose the ecient policy. A further extension where the elite own assets allows for a voluntarily transition to democracy.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2012-42.

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Date of creation: 2012
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Handle: RePEc:ema:worpap:2012-42
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  1. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  2. Lohmann, Susanne, 1994. "Information Aggregation through Costly Political Action," American Economic Review, American Economic Association, vol. 84(3), pages 518-30, June.
  3. Susanne Lohmann, 2010. "Information Aggregation Through Costly Political Action," Levine's Working Paper Archive 197, David K. Levine.
  4. Paul Maarek & Michael Dorsch & Karl Dunz, 2012. "Macro Shocks, Regulatory Quality and Costly Political Action," THEMA Working Papers 2012-41, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Daron Acemoglu, 2010. "Institutions, Factor Prices, and Taxation: Virtues of Strong States?," American Economic Review, American Economic Association, vol. 100(2), pages 115-19, May.
  6. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andre Shleifer, 2000. "The Regulation of Entry," Harvard Institute of Economic Research Working Papers 1904, Harvard - Institute of Economic Research.
  7. Acemoglu, Daron & Ticchi, Davide & Vindigni, Andrea, 2008. "A Theory of Military Dictatorships," Papers 03-10-2008a, Princeton University, Research Program in Political Economy.
  8. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
  9. Dorsch, Michael & Maarek, Paul, 2012. "Inefficient predation, information, and contagious institutional change," MPRA Paper 38759, University Library of Munich, Germany.
  10. Filipe R. Campante & Davin Chor, 2012. "Why Was the Arab World Poised for Revolution? Schooling, Economic Opportunities, and the Arab Spring," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 167-88, Spring.
  11. Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
  12. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  13. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
  14. Timur Kuran, 1989. "Sparks and prairie fires: A theory of unanticipated political revolution," Public Choice, Springer, vol. 61(1), pages 41-74, April.
  15. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
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