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Predation, Protection, and Accumulation: Endogenous Property Rights in an Overlapping Generations Growth Model

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  • Oguzhan Dincer

    ()

  • Christopher Ellis

Abstract

We study a simple growth model with overlapping generations in which property rights are insecure. Insecurity of property rights leads to predation. Due to predation some of the resources are used for protection purposes. Both predation and protection remove resources from the accumulation process. In the model individuals allocate their labor between working for firms and appropriating output from them. Firms allocate their capital between production and protection. Without government, the model generates a unique but inefficient equilibrium. We show that in this equilibrium the level of output is increasing in the rate of effectiveness of protection, the relative utility of honesty, and the discount rate. Further, the equilibrium level of output is dynamically inefficient. We then extend the model to include a government as the sole provider of the public good “protection”. Protection is assumed to be financed by a capital tax imposed on firms. The model then yields multiple equilibria, with both a stable high-protection low-predation equilibrium, and a stable low-protection high-predation equilibrium. Which equilibrium a country is most likely to achieve, and how difficult it is for a country to move to the more desirable low-predation high-protection equilibrium, depend crucially on the parameters of the model describing the economy’s institutional structure. Hence, the results of the model support the emphasis placed by the World Bank on the importance for growth of strengthening institutional structures in developing countries. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-1266-1
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 4 (August)
Pages: 435-455

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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:435-455

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: predation; property rights; economic growth;

References

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  1. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  2. Scully, Gerald W, 1988. "The Institutional Framework and Economic Development," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 652-62, June.
  3. Grossman, Herschel I & Kim, Minseong, 1996. " Predation and Accumulation," Journal of Economic Growth, Springer, vol. 1(3), pages 333-50, September.
  4. Torstensson, Johan, 1994. "Property Rights and Economic Growth: An Empirical Study," Kyklos, Wiley Blackwell, vol. 47(2), pages 231-47.
  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  6. Clague, Christopher & Keefer, Philip & Knack, Stephen & Olson, Mancur, 1999. "Contract Intensive Money," MPRA Paper 25717, University Library of Munich, Germany.
  7. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 590-602, July.
  8. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
  9. Aaron Tornell, 1995. "Economic Growth and Decline with Endogenous Property Rights," Harvard Institute of Economic Research Working Papers 1739, Harvard - Institute of Economic Research.
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Cited by:
  1. Andreas Irmen & Johanna Kuehnel, 2011. "Property rights, optimal public enforcement, and growth," CREA Discussion Paper Series 11-18, Center for Research in Economic Analysis, University of Luxembourg.
  2. Pierre PECHER, 2013. "Ethnic conflict, power dynamics and growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2014008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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