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Power and Inefficient Institutions

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  • Busch, Lutz Alexander
  • Muthoo, Abhinay

Abstract

This paper is concerned with the persistence of inefficient institutions. Why are they not replaced by more efficient ones? What and/or who prevents such change? We provide an answer to these questions based on two key ideas. The principal idea is that institutional change on an issue may adversely affect the bargaining power of some agents on different issues. The second is that certain kinds of frictions (or transaction costs) are present, which do not allow for this deteriorating bargaining power to be compensated for. A key insight obtained from our analysis is that, the greater is the degree of inequality in the players’ bargaining powers the more likely it is that inefficient institutions will persist.

Suggested Citation

  • Busch, Lutz Alexander & Muthoo, Abhinay, 2003. "Power and Inefficient Institutions," Economics Discussion Papers 8862, University of Essex, Department of Economics.
  • Handle: RePEc:esx:essedp:8862
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    File URL: http://repository.essex.ac.uk/8862/
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    References listed on IDEAS

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    1. Busch, Lutz-Alexander & Horstmann, Ignatius J., 2002. "The game of negotiations: ordering issues and implementing agreements," Games and Economic Behavior, Elsevier, vol. 41(2), pages 169-191, November.
    2. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    Cited by:

    1. Haque, Faizul & Arun, Thankom & Kirkpatrick, Colin, 2011. "The political economy of corporate governance in developing economies: The case of Bangladesh," Research in International Business and Finance, Elsevier, vol. 25(2), pages 169-182, June.
    2. Mukhopadhyay, Lekha, 2004. "Inequality, differential technology for resource extraction and voluntary collective action in commons," Ecological Economics, Elsevier, vol. 49(2), pages 215-230, June.
    3. Wilson Perez, 2004. "Divide and Conquer: Noisy Communication in Networks, Power, and Wealth Distribution," Working Papers 2004.33, Fondazione Eni Enrico Mattei.

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