Power fluctuations and political economy

Daron Acemoglu, Mikhail Golosov, Aleh Tsyvinski

Research output: Contribution to journalArticle

29 Scopus citations

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".

Original languageEnglish (US)
Pages (from-to)1009-1041
Number of pages33
JournalJournal of Economic Theory
Volume146
Issue number3
DOIs
StatePublished - May 1 2011

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Commitment problem
  • Dynamic political economy
  • Olson-McGuire hypothesis
  • Political compromise
  • Political economy
  • Political power

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    Acemoglu, D., Golosov, M., & Tsyvinski, A. (2011). Power fluctuations and political economy. Journal of Economic Theory, 146(3), 1009-1041. https://doi.org/10.1016/j.jet.2010.11.002