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POSC 182 Lecture 9 2010

POSC 182 Lecture 9 2010 - POSC 182 Politics and Economic...

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POSC 182: Politics and Economic Policy Unit 1: Institutions Lecture 9: The Origins of Political Institutions January 25, 2010
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Institutional Change? Old Institutions New Institutions Elites are likely to agree to changes in institutions since the new institutions are a win-win change. In this case, the new institutions are known as Pareto superior to the old institutions: No one is made worse off from the change in institutions and at least one person is made better off. $10 (20%) $40 (80%) $120 (60%) $80 (40%) Total: $50 Total: $200
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Institutional Change? Old Institutions New Institutions Elites are unlikely to agree to changes in institutions since the new institutions render them economic losers. AJR call this hold-up Although the new institutions are more socially efficient, they are not a Pareto improvement since elites lose, even though the size of the pie has expanded. $10 (20%) $40 (80%) $40 (67%) $20 (33%) Total: $50 Total: $60
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New Institutions $40 (67%) $20 (33%) Total: $60 Institutional Change? Old Institutions In order to overcome hold-up, incumbent elites have to be assured that there won’t be reprisals after they’ve lost power and that they will get to keep enough of the pie to make it worth giving up power by changing institutions. In this case, they will agree to change to the new institutions $10 (20%) $40 (80%) $18 (30%) $42 (70%) Total: $50
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