St.Petersburg Economic seminar (HSE, EU, PDMI) on April, 28: Dmitry A. Veselov (HSE)
Topic: Crony Capitalism as an Electoral Outcome
Date & Time: April, 28; 18:00 - 19:00
Where: St. Petersburg, Shpalernaya St, 1 (EUSP) & online platform Webinar
Time: 18:00 - 19:00
Abstract: Crony relations, i.e. the tight connection between the owners of major rms and the government, distort competition, and are related to high market entry barriers. We propose a theory that explains why, in a democracy, the majority of voters may prefer these types of institutions. This paper develops an endogenous growth model with heterogeneous agents, which differ in their skills and wealth endowment. We show that the wealthy elite and low-skilled workers may form a majority coalition, supporting the regime with high entry barriers. In this case, the wealthy elite agrees on a higher level of redistribution, preferred by the least skilled agents. The high income and skill inequalities result in the electoral support of crony capitalism and stagnation. Although educational reform is helpful to avoid the crony capitalism trap, the re- form may be blocked by the same coalition of rich capitalists with least-skilled voters. The model is able to explain several empirical facts: the existence of crony capitalism institutions in democracies and middle income traps.
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