A Theory of Political Influence and Economic Organization

Luis Sanchez-Mier
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Luis Sanchez-Mier: Department of Economics and Finance, Universidad de Guanajuato

No EC200504, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance

Abstract: I propose a cooperative game theory model of economic reform in a political environment with interest groups. Agents in a better economic position have strategic advantage in formulating economic policy. Agents bargain over policies because they are associated with different income distributions. In this context I examine the robustness of the `Coase Theorem' prediction of efficient bargaining. I use the Aspiration Core and the Aspiration Bargaining Set as solutions to the cooperative game. Even under zero transaction costs, if endogenous coalition formation is allowed, bargaining between interest groups need not result in efficient economic change because the core may be empty. Indeed, I show that there are inefficient equilibrium outcomes if and only if the core is empty.

Keywords: Political Economy; Interest Groups; Institutional Change; Coalition Formation; Cooperative Games; Aspiration Solution Concepts (search for similar items in EconPapers)
JEL-codes: C71 D72 D74 O12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-01
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