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Institutional Competition, Political Process and Holdup

  • Bruno Deffains
  • Dominique Demougin

We compare the effect of legal and institutional competition for the design of labor institutions in an environment characterized by holdup problems in human and physical capital. We compare autarky with the two country case, assuming that capital is perfectly mobile and labor immobile. We distinguish two cases. In the first, the political system is free from capture, while in the second, we examine the case where labor captures the institutional design problem. We find that in the former case, a competition of systems reduces welfare while in the latter it improves the overall outcome.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-027.

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Length: 26 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-027
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