A model of equilibrium institutions

Bernardo Guimaraes and Kevin Sheedy

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Institutions that serve the interests of an elite are often cited as an important reason for poor economic performance. This paper builds a model of institutions that allocate resources and power to maximize the payoff of an elite, but where any group that exerts sufficient fighting effort can launch a rebellion that destroys the existing institutions. The rebels are then able to establish new institutions as a new elite, which will similarly face threats of rebellion. The paper analyses the economic consequences of the institutions that emerge as the equilibrium of this struggle for power. High levels of economic activity depend on protecting private property from expropriation, but the model predicts this can only be achieved if power is not as concentrated as the elite would like it to be, ex post. Power sharing endogenously enables the elite to act as a government committed to property rights, which would otherwise be time inconsistent. But sharing power entails sharing rents, so in equilibrium power is too concentrated, leading to inefficiently low investment.

Keywords: institutions; political economy; power struggle; property rights; time inconsistency (search for similar items in EconPapers)
JEL-codes: E0 O4 P48 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2012-02
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://eprints.lse.ac.uk/42017/ Open access version. (application/pdf)

Related works:
Working Paper: A Model of Equilibrium Institutions (2012)
Working Paper: A Model of Equilibrium Institutions (2012)
Working Paper: A model of equilibrium institutions (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:42017

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().