Power Fluctuations and Political Economy
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Acemoglu_Power fluctuations.pdf
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290.31 KB
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Author(s)
Acemoglu, Daron
Golosov, Michael
Tsyvinski, Aleh
Date Issued
November 2010
Journal
Journal of Economic Theory
Publisher
Elsevier
Citation
Acemoglu, Daron, Mikhail Golosov, and Aleh Tsyvinski. “Power fluctuations and political economy.” Journal of Economic Theory, Volume 146, Issue 3, May 2011, Pages 1009–1041.© 2010 Elsevier Inc.
Version
Author's final manuscript
Abstract
We study (constrained) Pareto efficient allocations in a dynamic production economy where the group that holds political power decides the allocation of resources. For high discount factors, the economy converges to a first-best allocation where labor supply decisions are not distorted. For low discount factors, distortions do not disappear and fluctuate over time. Most importantly, the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power (because this encourages political compromise). This result contradicts the common presumption that there will be fewer distortions when there is a “stable ruling group”.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Attribution-Noncommercial-Share Alike 3.0 Unported
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DOI of Published Version
https://doi.org/10.1016/j.jet.2010.11.002
