 CRONY CAPITALISM AS AN ELECTORAL OUTCOMEHSE Working papers from National Research University Higher School of Economics Abstract: When property rights are poorly secured, crony relations i.e. the tight connection between the owners of major firms and the government are the primary informal mechanism securing the property. However, this institutional framework creates high entry barriers on markets. We propose a theory that explains why in a democracy the majority of voters may prefer this type of institutions. This paper develops a simple voting model with heterogeneous agents, which differ in their skills and wealth endowment. We show that if the policy space is two-dimensional, the wealthy elite and low-skilled workers may form a majority coalition, supporting the regime with high-entry barriers. In this case, the wealthy elite agrees on a higher level of redistribution, preferred by the least skilled agents. We compare the possibility of this outcome for different voting rules, and prove that the electoral support of crony capitalism is more likely for countries with a low level of human capital and high income and skill inequality. The model is also able to explain different effects of democratization process on the institutional structure of the society. Keywords: barriers to entry; electoral rules; income inequality; skills inequality; crony capitalism (search for similar items in EconPapers) Published in WP BRP Series: Economics / EC, July 2019, pages 1-37 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:217/ec/2019 Access Statistics for this paper More papers in HSE Working papers from National Research University Higher School of Economics |
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