 |
If property rights are poorly secured, crony relations i.e. the
tight connection between the owners of major firms and the government are the primary informal
mechanism securing the property. However, this institutional framework creates high
entry barriers on markets for outsiders. We propose a theory that explains why in a democracy the majority of voters can prefer this type of institutions. This paper develops a simple voting model with heterogeneous agents, which differ in their skills and wealth endowment. We show that if the policy space is two-dimensional, the wealthy elite and low-skilled workers can form a majority coalition, supporting the regime with high-entry barriers. In this case, the wealthy elite agrees on higher level redistribution, preferred by the least skilled agents. We compare the possibility of this outcome for different voting rules, and prove that the electoral support of crony capitalism is more probable for countries with a low level of human capital and high income and skill inequality.
The model is also able to explain different effects of democratization process on the institutional structure of the society.
