Capture by Threat

Harvard Business School Working Paper No. 00-041

31 Pages Posted: 8 May 2001

See all articles by Ernesto Dal Bo

Ernesto Dal Bo

University of California, Berkeley - Haas School of Business - Business and Public Policy

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2002

Abstract

We analyze a simple stochastic environment where policymakers can be threatened by "nasty" interest groups. In the absence of these groups, the policymaker's desire for reelection guarantees that good policies are implemented for every realization of the shock. When pressure groups can harass the policymaker, good policies will be chosen for only a subset of states of nature, a result similar to those obtained in the literature on "delayed reform". In order to enlarge this subset, the public will often find it convenient to elect "strong" political leaders, increase the cost for the group of exerting pressure and provide rents to those in power. The last result could be used as an explanation for the existence of political parties. They play a role resembling that of the supervisor in the literature on collusion in hierarchical agency. The paper also helps explain why honest politicians may choose bad policies and why countries may get to be governed by "bad politicians".

Keywords: democracy, bad policies, capture, political parties

JEL Classification: D72, D78

Suggested Citation

Dal Bo, Ernesto and Di Tella, Rafael, Capture by Threat (September 17, 2002). Harvard Business School Working Paper No. 00-041, Available at SSRN: https://ssrn.com/abstract=269117 or http://dx.doi.org/10.2139/ssrn.269117

Ernesto Dal Bo

University of California, Berkeley - Haas School of Business - Business and Public Policy ( email )

Berkeley, CA 94720
United States

Rafael Di Tella (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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