Aney Madhav S. author Ghatak Maitreesh author Morelli Massimo author Columbia University. Political Science Columbia University. Economics originator contributor text Working papers New York Department of Economics, Columbia University 2012 We study how inefficiencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms. Economics Political science 1213-02 http://hdl.handle.net/10022/AC:P:15204 English NNC NNC 2012-11-07 10:42:27 -0500 2012-11-07 10:48:57 -0500 9206 eng