Deregulation Despite Transitional Gains – The Brewers Guild of Cologne 1461

Acemoglu and Robinson (2000) argue that historically economic rents have been less successful than political rents in preventing reform and innovation. Contrary to this conclusion I argue that the important margin of distinction for factors preventing deregulation is not whether rents are economic or political, but rather what alternative profit opportunities are available and how innovation has changed the opportunity set. Using the example of medieval Cologne, I show that the transitional gains trap framework, as developed by Tullock (1975), applies in a static environment and can successfully prevent reform over long periods of time, but that neither political nor economic entrepreneurs will ignore an opportunity for increased profitability in the long run