Institutional Competition, Political Process and Holdup
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 in 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 one, the political system is free from capture, while in the second, we examine the case where labor captured the institutional design problem. We find that in the former case, a competition of systems reduces welfare while in the latter case it improves the overall outcome.
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