The Politics and Economics of Power

By Samuel Bowles; Maurizio Franzini et al. | Go to book overview

3

Adaptation and opportunism in political and economic markets

Maurizio Franzini


Introduction

According to a largely held view, in political markets, unlike economic markets, it is very easy to gain rents. This conclusion stems from the assumption that competition in political markets is actually quite weak and from the fact that perfect competition markets of the ideal type proposed by economists in which rents cannot be created are taken as a benchmark. In such markets, as Williamson (1991:17) so aptly put it: 'individual buyers and sellers bear no dependency relation to each other. Instead, each party can go its own way at negligible cost to another.'

Therefore it seems that in competitive markets it is possible to exit from economic relations without suffering relevant costs. The absence of these penalties demonstrates that rents-or, to state it more precisely, quasirents 1 -do not exist. In fact, if the continuance of a relation allows the benefit of rents, at least from one side, it is evident that its interruption must generate losses or costs.

The absence of rents-and, therefore, of those losses derived from the interruption of the relation-means that a sanctioning mechanism is necessary in the case of opportunistic behaviour. If this situation did not exist, opportunists-even when a counterpart exits-would not sustain losses and would not have any reason to refrain from breaking contractual agreements.

A simple solution to this problem can be seen in the imposition of sanctions by a body, such as a court of law, acting outside of the economic process. Nevertheless, as is well known, this solution is difficult to implement given the imperfections that characterise the judicial system.

Many scholars believe that an alternative solution for sanctioning the opportunists is represented by the ability of exit itself. Along these general lines, which date back to the 'invisible hand' proposed by Adam Smith, the opportunist can be sanctioned by his or her counterpart if the latter has access, without relevant costs, to other alternatives and if there is no asymmetric information. More explicitly, if the seller violates a contract, the buyer can turn to another supplier, therefore choosing exit and inflicting

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