Economics and politics of alternative institutional reforms

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Economics and politics of alternative institu ...
Francesco Caselli
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December 19, 2020 | History

Economics and politics of alternative institutional reforms

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"We compare the economic consequences and political feasibility of reforms aimed at reducing barriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulation fosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality of management (meritocracy). Legal reform also reduces financial constraints on entry, but in addition it facilitates transfers of control of incumbent firms, from untalented to talented managers. Since when incumbent firms are better run entry by new firms is less profitable, in general equilibrium legal reform may improve meritocracy at the expense of entrepreneurship. As a result, legal reform encounters less political opposition than deregulation, as it preserves incumbents' rents, while at the same time allowing the less efficient among them to transfer control and capture (part of) the resulting efficiency gains. Using this insight, we show that there may be dynamic complementarities in the reform path, whereby reformers can skillfully use legal reform in the short run to create a constituency supporting future deregulations. Generally speaking, our model suggests that "Coasian" reforms improving the scope of private contracting are likely to mobilize greater political support because -- rather than undermining the rents of incumbents -- they allow for an endogenous compensation of losers. Some preliminary empirical evidence supports the view that the market for control of incumbent firms plays an important role in an industry's response to legal reform"--National Bureau of Economic Research web site.

Publish Date
Language
English

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Cover of: Economics and politics of alternative institutional reforms
Economics and politics of alternative institutional reforms
2007, National Bureau of Economic Research
Electronic resource in English

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Book Details


Published in

Cambridge, MA

Edition Notes

Title from PDF file as viewed on 3/22/2007.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.

Series
NBER working paper series -- working paper 12833, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12833.

Classifications

Library of Congress
HB1

The Physical Object

Format
Electronic resource

ID Numbers

Open Library
OL17857832M
LCCN
2007615070

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December 11, 2009 Created by WorkBot add works page