THE WILLIAM DAVIDSON INSTITUTE AT THE UNIVERSITY OF MICHIGAN BUSINESS SCHOOL Why the Rich May Favor Poor Protection of Property Rights
نویسندگان
چکیده
In unequal societies, the rich might benefit from shaping economic institutions into their favor. This paper analyzes the dynamics of institutional subversion focusing on one particular institution, public protection of property rights. If this institution is imperfect, agents have incentives to invest in private protection of property rights. With economies of scale in private protection, rich agents have a significant advantage: they could expropriate other agents using their private protection capacities. Ability to maintain private protection system makes the rich natural opponents of full protection of property rights provided by the state. Such an environment does not allow grassroots demand to drive development of new market-friendly institutions (such as public protection of property rights). The economy as a whole is stuck in a ’bad’ long-run equilibrium with low growth rate, high inequality, and wide-spread rent-seeking. The Russian ‘oligarchs’ of 1990s, a handful of politically powerful agents that controlled large stakes of newly privatized property, were the major motivation for this paper. 1The author is grateful to Simeon Djankov, Do Quy-Toan, Richard Ericson, Jim Leitzel, Leonid Polishchuk, Victor Polterovich, Gerard Roland, Jacek Rostowski, and Judith Thornton for various helpful comments. Financial support of EERC-Russia is gratefully acknowledged. An earlier version of this paper has previously circulated as CEPR Discussion Paper 2300 ”Inequality, Property Rights Protection, and Economic Growth in Transition Economies: Theory and Russian Evidence”.
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