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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/26070
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| Title: | | The economics of politically connected firms  |
| Authors: | | Choi, Jay Pil Thum, Marcel |
| Issue Date: | | 2007 |
| Series/Report no.: | | CESifo working paper 2025 |
| Abstract: | | Political connections between firms and autocratic regimes are not secret and often even publicly displayed in many developing economies. We argue that tying a firms available rent to a regimes survival acts as a credible commitment forcing entrepreneurs to support the government and to exert effort in its stabilization. In return, politically connected firms get access to profitable markets and are exempted from the regimes extortion. We show that such a gift exchange between government and politically connected firms can only exist if certain institutional conditions are met. In particular, the stability of the regime has to be sufficiently low and the regime needs the power to exploit independent firms. We also show that building up a network of politically connected firms acts as a substitute for investments in autonomous stability (such as spending on military and police force). The indirect strategy of stabilizing a regime via politically connected firms gradually becomes inferior when a regimes exploitative power rises. |
| JEL: | | H1 H26 H32 L1 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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