DP12158 Towards a Political Theory of the Firm

Author(s): Luigi Zingales
Publication Date: July 2017
Keyword(s): Concentration, Lobbying, Theory of the firm
JEL(s): D21, G30, L20
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12158

Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a â??Medici vicious circle, where money is used to get political power and political power is used to make money.