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Knowing the right person in the right place: political connections and resistance to change

Author

Listed:
  • Giovanni Prarolo

    (University of Bologna)

  • Carlotta Berti Ceroni

    (University of Bologna)

  • Giorgio Bellettini

    (Universtiy of Bologna)

Abstract

We develop a political economy model of Schumpeterian growth with entry where excessive red tape and bureaucracy are used strategically by the incumbent politician to acquire incumbency advantage. By setting sufficiently high red tape, the politician induces the monopolist to invest in networking, as bureaucratic costs can be reduced through personal relationships developed with the incumbent politician, and determines a static gain for voters in case of re-election. Our model generates political equilibria where the incumbent politician secures re-election, and that involve either perpetual upgrading or technological inertia. Although blocked entry implies a dynamic loss, the latter equilibrium is supported by forward-looking voters who value the static gain associated to the status quo. The model provides a possible explanation for the persistence of inefficient democracies and political barriers to technology adoption, where these reflect shared rather than conflicting interests.

Suggested Citation

  • Giovanni Prarolo & Carlotta Berti Ceroni & Giorgio Bellettini, 2012. "Knowing the right person in the right place: political connections and resistance to change," 2012 Meeting Papers 976, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:976
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    References listed on IDEAS

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    1. Giorgio Bellettini & Gianmarco I. P. Ottaviano, 2005. "Special Interests and Technological Change," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 43-56.
    2. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2011. "Emergence And Persistence Of Inefficient States," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 177-208, April.
    3. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
    4. Antonio Merlo & Vincenzo Galasso & Massimiliano Landi & Andrea Mattozzi, 2008. "The Labor Market of Italian Politicians," Working Papers 15-2008, Singapore Management University, School of Economics, revised Oct 2008.
    5. Acemoglu, Daron & Robinson, James A., 2006. "Economic Backwardness in Political Perspective," American Political Science Review, Cambridge University Press, vol. 100(01), pages 115-131, February.
    6. Boeri, Tito & Merlo, Antonio & Prat, Andrea (ed.), 2010. "The Ruling Class: Management and Politics in Modern Italy," OUP Catalogue, Oxford University Press, number 9780199588282.
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    Cited by:

    1. Baskaran, Thushyanthan & Lopes da Fonseca, Mariana, 2016. "Electoral competition and endogenous political institutions: Quasi-experimental evidence from Germany," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 43-61.
    2. Giorgio Bellettini & Carlotta Berti Ceroni & Giovanni Prarolo, 2013. "Persistence Of Politicians And Firms' Innovation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2056-2070, October.
    3. repec:eee:poleco:v:51:y:2018:i:c:p:121-140 is not listed on IDEAS

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