Markets and Jungles

Thomas Gall and Paolo Masella

No dp-187, Boston University - Department of Economics - The Institute for Economic Development Working Papers Series from Boston University - Department of Economics

Abstract: 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.

Keywords: Expropriation; consistent set; inequality; volatility (search for similar items in EconPapers)
JEL-codes: C71 D70 O17 (search for similar items in EconPapers)
Pages: 38
Date: 2009-02
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Related works:
Journal Article: Markets and jungles (2012)
Working Paper: Markets and Jungles (2011)
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