In this paper we develop a positive theory of capital market frictions.
We focus on a political conflict that arises between citizens with di¤erent
vintages of human capital. Once human capital is sunk in a …rm- or sector
speci…c technology, stakeholders will resist the emergence of newer sectors
to avoid inter-sectoral reallocation of capital and thus a reduction in their
(quasi) rents. We argue that in democracies, a majority will choose to
protect stakeholder interests and restrict capital mobility if (i) wealth is
concentrated; (ii) technology growth is high; and (iii) social mobility is low.