Endogenous Property Rights∗
نویسندگان
چکیده
It is often argued that additional checks and balances provide economic agents with better protection from expropriation of their wealth or productive capital. We demonstrate that in a dynamic political economy model this intuition may be flawed. Surprisingly, increasing the number veto players or the majority requirement for redistribution may reduce property right protection on the equilibrium path. The reason is that there are two complementary mechanisms of property rights protection. One is the individual’s veto power, his ability to prevent any redistribution which is not in his favor. The other is the mutual protection of non-veto players with similar wealth in equilibrium. Thus, the model explains why property rights of individuals who do not possess a lot of political power are nevertheless often respected. Non-veto players anticipate that the expropriation of one of them will ultimately hurt others, and thus combine their influence to prevent redistributions; the flip-side of this is that individual investment efforts might require coordination. The property rights of non-veto players may suffer if the environment changes, even if the number of veto players or the supermajority requirement increases. The model also predicts that distribution of wealth in societies with weaker formal institutions (smaller supermajority requirements) among the non-veto players will tend to be more homogenous.
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