Asset Composition, Insurance and Political Competition A Formal and Empirical Analysis

Many political economy models explicitly formalize the political preferences of heterogeneous individuals who differ in their factor composition of capital and labor or in income. Such a formalization has produced extremely tractable results and offers an intuitive and rigorous way to analyze how political interests compete and coalesce in democratic countries. However, these analyses for the most part assume that all factors are uniform: that capital assets, for example, are perfectly fungible and homogenous. Such an analysis assumes freedom of movement in capital and labor, international factor price equalization, and discreet and uniform factor composition. These assumptions are, however, somewhat tenuous, given the complexity of asset holdings. In fact, the assets held by individuals can differ greatly in their composition even if, in traditional analyses, a unit of capital or labor is an essentially homogenous factor.