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A Theory of Political Influence and Economic Organization

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  • Luis Sanchez-Mier

    (Department of Economics and Finance, Universidad de Guanajuato)

Abstract

I propose a cooperative game theory model of economic reform in a political environment with interest groups. Agents in a better economic position have strategic advantage in formulating economic policy. Agents bargain over policies because they are associated with different income distributions. In this context I examine the robustness of the `Coase Theorem' prediction of efficient bargaining. I use the Aspiration Core and the Aspiration Bargaining Set as solutions to the cooperative game. Even under zero transaction costs, if endogenous coalition formation is allowed, bargaining between interest groups need not result in efficient economic change because the core may be empty. Indeed, I show that there are inefficient equilibrium outcomes if and only if the core is empty.

Suggested Citation

  • Luis Sanchez-Mier, 2005. "A Theory of Political Influence and Economic Organization," Department of Economics and Finance Working Papers EC200504, Universidad de Guanajuato, Department of Economics and Finance.
    • Handle: RePEc:gua:wpaper:ec200504
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    References listed on IDEAS

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    1. Philip Reny & Eyal Winter & Myrna Wooders, 2012. "The partnered core of a game with side payments," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(2), pages 521-536, July.
    2. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-1161, July.
    3. Vega-Redondo, F., 1990. "Technological Change and Institutional Inertia; A Co-Evolutionary Model with Two Hierarchical Levels," UFAE and IAE Working Papers 146.90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Aivazian, Varouj A & Callen, Jeffrey L, 1981. "The Coase Theorem and the Empty Core," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 175-181, April.
    5. Eggertsson,Thrainn, 1990. "Economic Behavior and Institutions," Cambridge Books, Cambridge University Press, number 9780521348911, January.
    6. repec:bla:econom:v:54:y:1987:i:216:p:517-20 is not listed on IDEAS
    7. Rodrik, Dani, 1993. "The Positive Economics of Policy Reform," American Economic Review, American Economic Association, vol. 83(2), pages 356-361, May.
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    More about this item

    Keywords

    Political Economy; Interest Groups; Institutional Change; Coalition Formation; Cooperative Games; Aspiration Solution Concepts;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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