Political Feasibility and Economic Efficiency: Do Institutions Matter?

The political feasibility study presented in this working paper has been undertaken in the course of the PHARE-project "Evaluation of consequences of an accession of the Slovak Republic into the EU on the competitiveness of the Slovak food processing industry". The main objective of the PHARE-project was to identify the adjustment problems faced by the food-processing industry in the Slovak Republic when joining the EU and to elaborate on the best strategies in dealing with approaching competition from the EU food industry subject to the restrictions imposed by GATT. The main scope of the study at hand was to analyze to what extent economically efficient agricultural policies are politically feasible, i.e. will actually be implemented in the given Slovakian politico-economic system. In particular, the analysis consists of an evaluation of the political feasibility and implementation requirements of reforms economically needed by the processing industry given the present structure of the Slovakian politico-economic system. In addition, it has been analyzed to what extent EU-accession can be considered as a second-best policy leading to sub-optimal results from an economic point of view in comparison to first-best policies. However, being politically feasible it can thus be considered just as preferable as first-best policies, which are found to be politically infeasible. Moreover, specific changes of structural or institutional conditions of the political sector have been identified which shift the politico-economic equilibrium towards first-best policies