Aney, Madhav S., Morelli, Massimo and Ghatak, Maitreesh (2013) Can market failure cause political failure? Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2013 (Number 122).

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Abstract

We study how inefficiencies of market failure may be further amplified by political choices
made by interest groups created in the inefficient market. We take an occupational choice
framework, where agents are endowed heterogeneously with wealth and talent. In our model,
market failure due to unobservability of talent endogenously creates a class structure that
affects voting on institutional reform. In contrast to the world without market failure where
the electorate unanimously vote in favour of surplus maximising institutional reform, we find
that the preferences of these classes are often aligned in ways that creates a tension between
surplus maximising and politically feasible institutional reforms.

Item Type:	Working or Discussion Paper (Working Paper)
Alternative Title:
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Stock exchanges, Economics -- Mathematical models, Economics -- Political aspects
Series Name:	CAGE Online Working Paper Series
Publisher:	Department of Economics, University of Warwick
Place of Publication:	Coventry, UK
Official Date:	2013
Dates:	Date Event 2013 Published
Volume:	Volume 2013
Number:	Number 122
Number of Pages:	32
Status:	Not Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access (Creative Commons)
Date of first compliant deposit:	1 August 2016
Date of first compliant Open Access:	1 August 2016

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