Oligarchic Versus Democratic Societies

Abstract

This paper develops a model to analyze economic performance under different political regimes. An "oligarchic" society, where political power is in the hands of major producers, protects their property rights but also tends to erect significant entry barriers against new entrepreneurs. Democracy, where political power is more widely diffused, imposes redistributive taxes on producers, but tends to avoid entry barriers. When taxes in democracy are high and the distortions caused by entry barriers are low, an oligarchic society achieves greater efficiency. Because comparative advantage in entrepreneurship shifts away from the incumbents, the inefficiency created by entry barriers in oligarchy deteriorates over time. The typical pattern is one of rise and decline of oligarchic societies: An oligarchic society may first become richer, but later fall behind a similar democratic society. I also discuss how democracies may be better able to take advantage of new technologies, how within-elite conflict in oligarchies might cause a transition to democracy, and how the unequal distribution of income may keep inefficient oligarchic institutions in place. (JEL: P16, O10)

Trade liberalization, democratization, and technology adoption

“…He made the point that, in the face of a more intense competition from international markets, firms that may have had little incentive to adopt prior to liberalization may improve their technologies (by either doing R&D or taking advantage of existing technologies). Acemoglu (2003) highlights that, besides affecting domestic relative prices, trade liberalization increases the possibility to adopt superior technologies. He also notices, however, that not all countries appear to have equally profited from this opportunity and concludes that it would be important to further investigate the incentives for endogenous technology adoption.…”

“…4 the population at large, see Acemoglu (2006). 2 Indeed, Berman and Machin (2000) argue that the differential skill upgrading observed in the LDC's may reflect differences in these countries' choices of whether to adopt skill-biased technologies.…”

“…Notice that since the production function (2) Acemoglu (2006) for an extensive discussion of these issues. 13 For instance, the assumption that an increase in A only affects the production of good X is only to simplify illustration.…”

Contract Enforcement: A Political Economy Model of Legal Development

“…See, for example, Glaeser et al (2003), Sonin (2003), Hoff and Stiglitz (2004), Acemoglu andRobinson (2006b, 2008), Chong and Gradstein (2007a). article differs from these studies in several aspects. First, a key difference is in the exact source of inefficiency.…”

Can Efficient Institutions Induce Cooperation Among Low Trust Agents?

“…The literature we refer to includes: Acemoglu (2005Acemoglu ( , 2008; Acemoglu, Cantoni, Johnson & Robinson (2010); Acemoglu, Johnson & Robinson (2001, 202, 2003; Acemoglu & Robinson (2000a, 2000b, 2001, 2006a, 2006b; García-Jimeno & Robinson (2011); Robinson (1998).…”