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

  • Paul Maarek


    (THEMA, Universite de Cergy-Pontoise and THEMA)

  • Michael Dorsch


    (The American University of Paris)

  • Karl Dunz


    (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 inefficient regulation and above the threshold development level the elite chose the efficient 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
Date of revision:
Handle: RePEc:ema:worpap:2012-42
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  1. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  2. Lohmann, Susanne, 1994. "Information Aggregation through Costly Political Action," American Economic Review, American Economic Association, vol. 84(3), pages 518-30, June.
  3. 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.
  4. Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
  5. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
  6. 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.
  7. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2008. "A Theory of Military Dictatorships," Carlo Alberto Notebooks 74, Collegio Carlo Alberto.
  8. Susanne Lohmann, 2010. "Information Aggregation Through Costly Political Action," Levine's Working Paper Archive 197, David K. Levine.
  9. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 1-37.
  10. Paul Maarek & Michael Dorsch, 2012. "Inefficient Predation, Information, and Contagious Institutional Change," THEMA Working Papers 2012-32, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  11. Acemoglu,Daron & Robinson,James A., 2006. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521855266.
  12. 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.
  13. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  14. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  15. Timur Kuran, 1989. "Sparks and prairie fires: A theory of unanticipated political revolution," Public Choice, Springer, vol. 61(1), pages 41-74, April.
  16. 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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