Markets and jungles
Markets and jungles
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 skill and land.
expropriation, market institutions, inequality, growth, fluctuations, coalition formation
103-141
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4
Masella, Paolo
cf107a03-fdc6-4214-88c1-ee0eaaa1de00
June 2012
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4
Masella, Paolo
cf107a03-fdc6-4214-88c1-ee0eaaa1de00
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 skill and land.
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e-pub ahead of print date: 15 November 2011
Published date: June 2012
Keywords:
expropriation, market institutions, inequality, growth, fluctuations, coalition formation
Organisations:
Economics
Identifiers
Local EPrints ID: 348655
URI: http://eprints.soton.ac.uk/id/eprint/348655
ISSN: 1381-4338
PURE UUID: cdff2c5a-4f37-4d94-8784-3dc3d4bbe339
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Date deposited: 18 Feb 2013 11:09
Last modified: 15 Mar 2024 03:46
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Author:
Paolo Masella
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