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Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights

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Author Info
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))

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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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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
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Handle: RePEc:cfr:cefirw:w0116

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  5. Besley, Timothy J. & Persson, Torsten, 2007. "The Origins of State Capacity: Property Rights, Taxation, and Politics," CEPR Discussion Papers 6370, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Grossman, Herschel I, 1994. "Production, Appropriation, and Land Reform," American Economic Review, American Economic Association, vol. 84(3), pages 705-12, June. [Downloadable!] (restricted)
  7. Daron Acemoglu, 2008. "Oligarchic Versus Democratic Societies," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 1-44, 03. [Downloadable!] (restricted)
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  8. Mark Gradstein, 2007. "Inequality, democracy and the protection of property rights," Economic Journal, Royal Economic Society, vol. 117(516), pages 252-269, 01. [Downloadable!] (restricted)
  9. Serguey Braguinsky & Roger Myerson, 2007. "A macroeconomic model of Russian transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(1), pages 77-107, 03. [Downloadable!] (restricted)
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  11. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112. [Downloadable!] (restricted)
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  13. Daron Acemoglu & James A. Robinson & Thierry Verdier, 2003. "Kleptocracy and Divide-and-Rule: A Model of Personal Rule," NBER Working Papers 10136, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December. [Downloadable!] (restricted)
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