Markets and Jungles

Thomas Gall and Paolo Masella

No 30, Proceedings of the German Development Economics Conference, Berlin 2011 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: Economic institutions determine prospects for growth and development. This paper examines necessary conditions for an economy to support institutions that implement markets. Agents differ in land holdings, skill, and power. A competitive market assigns land to the skilled, not necessarily to the powerful. Therefore a market allocation needs to be robust to coalitional expropriation. In a dynamic setting, market payoffs may induce sufficient inequality in next period's endowments for markets to alternate with expropriation in a limit cycle, decreasing efficiency and amplifying macroeconomic fluctuations. Long run stability of markets is favored by higher social mobility, more initial equality, and less mismatch between demand and supply.

Keywords: Expropriation; market institutions; inequality; fluctuations; coalition formation (search for similar items in EconPapers)
JEL-codes: C71 E02 O43 (search for similar items in EconPapers)
Date: 2011
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Related works:
Journal Article: Markets and jungles (2012)
Working Paper: Markets and Jungles (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:gdec11:30

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