Why Are Market Economies Politically Stable? A Theory of Capitalist Cohesion
Carl-Johan Dalgaard () and
Ola Olsson ()
No 280, Working Papers in Economics from University of Gothenburg, Department of Economics
The present paper documents that political stability is positively associated with the extent of domestic trade. In explaining this reg- ularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market ex- change, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the prefer- ences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that en- hance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non- cooperative under self-su¢ ciency, the political decision making process becomes cooperative in the market economy, as the welfare of individ- uals will be mutually interdependent due to the exchange of goods.
Keywords: Political cohesion; Economic growth (search for similar items in EconPapers)
JEL-codes: O41 P16 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-dev, nep-pol and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Working Paper: Why Are Market Economies Politically Stable? A Theory of Capitalist Cohesion (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:gunwpe:0280
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers in Economics from University of Gothenburg, Department of Economics Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Ann-Christin Räätäri Nyström ().