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A Theory of Political Influence and Economic Organization

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  • Luis Sanchez-Mier

    () (Department of Economics and Finance, Universidad de Guanajuato)

Abstract

I propose a cooperative game theory model of economic reform in a political environment with interest groups. Agents in a better economic position have strategic advantage in formulating economic policy. Agents bargain over policies because they are associated with different income distributions. In this context I examine the robustness of the `Coase Theorem' prediction of efficient bargaining. I use the Aspiration Core and the Aspiration Bargaining Set as solutions to the cooperative game. Even under zero transaction costs, if endogenous coalition formation is allowed, bargaining between interest groups need not result in efficient economic change because the core may be empty. Indeed, I show that there are inefficient equilibrium outcomes if and only if the core is empty.

Suggested Citation

  • Luis Sanchez-Mier, 2005. "A Theory of Political Influence and Economic Organization," Department of Economics and Finance Working Papers EC200504, Universidad de Guanajuato, Department of Economics and Finance.
  • Handle: RePEc:gua:wpaper:ec200504
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    File URL: http://economia.ugto.org/WorkingPapers/EC200504.pdf
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    References listed on IDEAS

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    1. Philip Reny & Eyal Winter & Myrna Wooders, 2012. "The partnered core of a game with side payments," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(2), pages 521-536, July.
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    More about this item

    Keywords

    Political Economy; Interest Groups; Institutional Change; Coalition Formation; Cooperative Games; Aspiration Solution Concepts;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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