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

  • Dorsch, Michael
  • Dunz, Karl
  • Maarek, Paul

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 an elite ruling class that sets policy and an imperfectly informed disenfranchised class, who may choose to revolt. We identify the Perfect Bayesian Equilibrium (PBE), which need not be pure strategies. We enrich the basic model in an extension that includes two-sided uncertainty and introduces an additional constraint on the elite's policy decision. The extended model features pure strategies in the PBE, which can include inefficient policy choices and revolution. We char- acterize the equilibrium strategies in terms of the economy's level of development.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38879.

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Date of creation: May 2012
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Handle: RePEc:pra:mprapa:38879
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  1. Acemoglu, Daron & Ticchi, Davide & Vindigni, Andrea, 2008. "A Theory of Military Dictatorships," Papers 03-10-2008a, Princeton University, Research Program in Political Economy.
  2. Lohmann, Susanne, 1994. "Information Aggregation through Costly Political Action," American Economic Review, American Economic Association, vol. 84(3), pages 518-30, June.
  3. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  4. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
  5. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
  6. Susanne Lohmann, 2010. "Information Aggregation Through Costly Political Action," Levine's Working Paper Archive 197, David K. Levine.
  7. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  8. 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.
  9. Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, September.
  11. Timur Kuran, 1989. "Sparks and prairie fires: A theory of unanticipated political revolution," Public Choice, Springer, vol. 61(1), pages 41-74, April.
  12. Daron Acemoglu, 2010. "Institutions, Factor Prices and Taxation: Virtues of Strong States?," NBER Working Papers 15693, National Bureau of Economic Research, Inc.
  13. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  14. Christopher J. Ellis & John Fender, 2011. "Information Cascades and Revolutionary Regime Transitions," Economic Journal, Royal Economic Society, vol. 121(553), pages 763-792, 06.
  15. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  16. 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.
  17. 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.
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