Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach
AbstractWe consider an economy where property rights are necessary to ensure sufficient rewards to ex-ante investments. Because enforcement of property rights influences the ex-post distribution of rents, there is room for corruption. We characterize the optimal organization of society and the optimal degree of property rights enforcement subject to incentive constraints of the agents. We find that three frequently mentioned government failures arise quite naturally as part of the optimal mechanism: i) rents to government employees; ii) corruption; and iii) misallocation of talent. Therefore, these observations are not by themselves proof of government failure. We also discover that the general equilibrium aspect of our model leads to a number of new results: there may exist a free lunch such that over a certain range it is possible to simultaneously reduce corruption and the misallocation of talent, and increase investment. It will also often be the case that bureaucracies will impose a certain amount of self discipline.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1494.
Date of creation: Oct 1996
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Other versions of this item:
- Acemoglu, Daron & Verdier, Thierry, 1998. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 108(450), pages 1381-1403, September.
- Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Working papers 96-5, Massachusetts Institute of Technology (MIT), Department of Economics.
- Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," DELTA Working Papers 96-12, DELTA (Ecole normale supérieure).
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- H40 - Public Economics - - Publicly Provided Goods - - - General
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