The formation of economic policy reflects the underlying economic and political structure. A game theoretic approach is employed in formulating the political structure, which is then combined with the economic structure to yield a model of a political economy. The parameters of the model are estimable from observed behavior. A model of the Israeli dairy program is constructed and estimated. The power relations and the structure of the conflict among interest groups are investigated.
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Zusman et al. (1977) studied this question.