Political Economy in a Changing World

We provide a general framework for the analysis of the dynamics of institutional change (e.g., democratization), and how this interacts with (anticipated and unanticipated) changes in the distribution of political power and changes in economic structure. We focus on the Markov voting equilibria, which require that economic and political changes should take place if there exists a subset of players with the power to implement such changes and who will obtain higher expected continuation utility by doing so. Assuming that economic and political institutions as well as individual types can be ordered, and preferences and the distribution of political power satisfy a natural "single crossing" condition, we prove the existence of pure-strategy equilibrium, provide conditions for its uniqueness, and present a number of comparative static results that apply at this level of generality. We then use this framework to study the dynamics of political rights and repression in the presence of radical groups that can stochastically grab power depending on the distribution of political rights in society. We characterize the conditions under which the presence of radicals leads to repression, show a type of path dependence in politics resulting from radicals coming to power, and identify a novel strategic complementarity in repression.