Markov Perfect Political Equilibria with Public Policy: The Role of Education Cost

Ryo Arawatari () and Tetsuo Ono

No 07-31, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP)

Abstract: This paper focuses on how education costs affect the political determination of public policy via individual decision-making. The paper extends the model in Hassler, Storesletten, and Zilibotti (2007, Journal of Economic Theory; henceforth HSZ) by generalizing the cost function of education and considers several cases, along with HSZ as a special case. In cases where education cost is high, the characterization of political equilibrium is similar to HSZ. In cases where education cost is low, the characterization is entirely different from HSZ: namely, a political equilibrium exists where (i) the rich are always politically decisive and (ii) the equilibrium outcome is unique.

Keywords: Markov perfect equilibrium; Dynamic political economy; Public policy; Education cost (search for similar items in EconPapers)
JEL-codes: D72 D78 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-edu, nep-mac and nep-pol
Date: 2007-08
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Persistent link: http://EconPapers.repec.org/RePEc:osk:wpaper:0731

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