Political intervention in economic activity

Enrique Gilles

No 7180, Documentos de Trabajo from Universidad del Rosario

Abstract: This paper proposes a political economy explanation of bailouts to declining industries. A model of probabilistic voting is developed, in which two candidates compete for the vote of two groups of the society through tactical redistribution. We allow politicians to have core support groups they understand better, this implies politicians are more or less effective to deliver favors to some groups. This setting is suited to reproduce pork barrels or machine politics and patronage. We use this model to illustrate the case of an economy with both an efficient industryand a declining one, in which workers elect their government. We present the conditions under which the political process ends up with the lagged-behind industry being allowed to survive.

Keywords: probabilistic voting; redistribution; survival of inefficient firms; porkbarrels (search for similar items in EconPapers)
JEL-codes: D72 D78 (search for similar items in EconPapers)
Pages: 36
Date: 2010-05-31
New Economics Papers: this item is included in nep-cdm and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:007180

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