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Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights

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  • Sergei Guriev

    (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR))

  • Konstantin Sonin

    ()
    (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR))

Abstract

In an economy with weak economic and political institutions, the major institutional choices are made strategically by oligarchs and dictators. The conventional wisdom presumes that as rent-seeking is harmful for oligarchs themselves, institutions such as enforcement of the property rights will emerge eventually. We explicitly model a dynamic game between oligarchs and a dictator, who can contain rent-seeking. The oligarchs choose either a weak dictator (who can be overthrown by an individual oligarch) or a strong dictator (who can only be replaced via a consensus of oligarchs). In equilibrium, no dictator can commit to both: (i) protecting the oligarchs?property rights from the other oligarchs and (ii) not expropriating oligarchs himself. We show that a weak dictator does not limit rent-seeking. A strong dictator does reduce rent-seeking but also expropriates individual oligarchs. We show that even though eliminating rent-seeking is Pareto optimal, weak dictators do get appointed in equilibrium and rent-seeking continues. This outcome is especially likely when economic environment is highly volatile.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0116.

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Length: 25 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0116

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Cited by:
  1. Bernardo Guimaraes & Kevin D. Sheedy, 2012. "A Model of Equilibrium Institutions," CEP Discussion Papers, Centre for Economic Performance, LSE dp1123, Centre for Economic Performance, LSE.
  2. Van Long, Ngo, 2013. "The theory of contests: A unified model and review of the literature," European Journal of Political Economy, Elsevier, Elsevier, vol. 32(C), pages 161-181.
  3. Daniel Leonard & Ngo Van Long, 2012. "Endogenous Changes in Property Rights Regime," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 88(280), pages 79-88, 03.
  4. Pino, Francisco J. & Vidal-Robert, Jordi, 2014. "Habemus Papam? Polarization and Conflict in the Papal States," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 189, Competitive Advantage in the Global Economy (CAGE).
  5. Daron Acemoglu & James A. Robinson, 2013. "Economics versus Politics: Pitfalls of Policy Advice," NBER Working Papers 18921, National Bureau of Economic Research, Inc.
  6. Li, Yuan & Gilli, Mario, 2014. "Accountability in Autocracies: The Role of Revolution Threat," Working Paper Series 2014-30, Stockholm China Economic Research Institute, Stockholm School of Economics, revised 06 Mar 2014.
  7. Gehlbach, Scott & Keefer, Philip, 2011. "Investment without democracy: Ruling-party institutionalization and credible commitment in autocracies," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 123-139, June.

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