Changing Social Contracts: Beliefs and Dissipative Inclusion in Brazil

Lee J. Alston, Marcus Melo, Bernardo Mueller, Carlos Pereira

NBER Working Paper No. 18588
Issued in December 2012
NBER Program(s):Development of the American Economy, Development Economics, Political Economy

Social contracts about inequality and redistribution are country-specific. We rely on a model of inequality and redistribution where multiple steady states can emerge in given country. We link the model to the recent literature on beliefs and argue that beliefs are a major determinant of which equilibrium results. We show that changes in beliefs may shift the equilibrium in a country over time. We present evidence that beliefs are typically very stable over time, yet argue that Brazil has recently undergone a dramatic shift in beliefs which we show is associated with a change in the country's social contract in the past thirty years. The transition from one social contract to another has taken place through a process which we call 'dissipative inclusion', where redistribution and social inclusion are effectively achieved but accompanied by distortions, inefficiencies and rent dissipation.

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Document Object Identifier (DOI): 10.3386/w18588

Published: Alston, Lee J. & Melo, Marcus Andre & Mueller, Bernardo & Pereira, Carlos, 2013. "Changing social contracts: Beliefs and dissipative inclusion in Brazil," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 48-65. citation courtesy of

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