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Inefficient predation, information, and contagious institutional change

Dorsch, Michael and Maarek, Paul (2012): Inefficient predation, information, and contagious institutional change.

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Abstract

This paper presents an agency theory of revolutionary political transitions from autocracy to democracy. We model authoritarian economic policy as the equilibrium outcome of a repeated game between an elite ruling class and a disenfranchised working class, in which workers have imperfect information about the elite's policy choice and the economy's productive capacity. We characterize the conditions under which, in equilibrium, (i) the elite will set inefficient economic institutions under the threat of revolution, (ii) information shocks can catalyze democratic revolutions that may be contagious among similar countries, and (iii) democracy can be consolidated following a political transition.

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