Institutions affect prospects for economic growth and development. In this paper a condition on the primitives determines whether an economy supports markets. Agents differ in land holdings, skill, and power. A competitive market assigns land efficiently to the skilled, not necessarily to the powerful. Therefore a market allocation needs to be stable with respect to coalitional expropriation. More equally distributed power and higher congruence of land and power favor stable markets. In a dynamic setting, we identify conditions that ascertain whether markets are stable forever, or alternate with expropriation in a limit cycle, decreasing efficiency and amplifying macroeconomic fluctuations.
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Find related papers by JEL classification: O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
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