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Political Predation and Economic Development

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  • Azam, Jean-Paul
  • Bates, Robert H.
  • Biais, Bruno
Abstract
We analyze a game between citizens and governments, whose type (benevolent or predatory) is unknown to the public. Opportunistic governments mix between predation and restraint. As long as restraint is observed, political expectations improve, people enter the modern sector, and the economy grows. Once there is predation, the reputation of the government is ruined and the economy collapses. If citizens are unable to overthrow this government, the collapse is durable. Otherwise, a new government is drawn and the economy can rebound. Consistent with stylized facts, equilibrium political and economic histories are random, unstable, and exhibit long-term divergence.
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Suggested Citation

  • Azam, Jean-Paul & Bates, Robert H. & Biais, Bruno, 2009. "Political Predation and Economic Development," TSE Working Papers 09-025, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:21918
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    10. Sonin, Konstantin & Goriaev, Alexei P., 2005. "Is Political Risk Company-Specific? The Market Side of the Yukos Affair," CEPR Discussion Papers 5076, C.E.P.R. Discussion Papers.
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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