Political Economy in a Changing World∗

We provide a general framework for the analysis of the dynamics of institutional change (e.g., democratization, extension of political rights, or repression of different groups), and how these dynamics interact with (anticipated and unanticipated) changes in the distribution of political power and in economic structure. We focus on Markov Voting Equilibria, which require that economic and political changes should take place if there exists a subset of players with the power to implement such changes and who will obtain higher expected discounted utility by doing so. Assuming that economic and political institutions as well as individual types can be ordered, and preferences and the distribution of political power satisfy natural “single crossing” (increasing differences) conditions, we prove the existence of a pure-strategy equilibrium, provide conditions for its uniqueness, and present a number of comparative static results that apply at this level of generality. We then use this framework to study the dynamics of political rights and repression in the presence of radical groups that can stochastically grab power and the dynamics of collective experimentation over institutions.