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The Role of the Private Sector under Insecure Property Rights

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  • Tenryu, Yohei
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    Abstract

    Voracious behavior is one of the excess uses of the commons. It is known that the voracity effect can be observed in the economy with common and private capital. We explore another cause of voracious behavior and investigate the effects of voracious behavior on the economy. For this purpose, we introduce a new direction of capital flow. A government mandates that all groups invest their private capital in the common sector to mitigate the effects of excess use of the commons. We show theoretically that there is no standard voracity effect in the sense that Tornell and Lane (1999) define and that a group's equilibrium consumption strategy is the Markov control-state complementarity. We observe numerically that an increase in the contribution of the private sector into the common sector has a negative effect on growth. This implies that the policy for preservation of the commons leads to the harmful effect on the economy.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50727.

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    Date of creation: Oct 2013
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    Handle: RePEc:pra:mprapa:50727

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    Keywords: differential game; Markov perfect equilibrium; voracity effect.;

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    1. Ines Lindner & Holger Strulik, 2008. "Social Fractionalization, Endogenous Appropriation Norms, and Economic Development," Economica, London School of Economics and Political Science, vol. 75(298), pages 244-258, 05.
    2. Holger Strulik & Ines Lindner, 1999. "Why not Africa? -- Growth and Welfare Effects of Secure Property Rights," Quantitative Macroeconomics Working Papers 19909, Hamburg University, Department of Economics.
    3. Ngo Long & Gerhard Sorger, 2006. "Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity," Economic Theory, Springer, vol. 28(3), pages 513-529, 08.
    4. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December.
    5. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July.
    6. Strulik, Holger, 2012. "Poverty, voracity, and growth," Journal of Development Economics, Elsevier, vol. 97(2), pages 396-403.
    7. Lane, Philip R & Tornell, Aaron, 1996. " Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-41, June.
    8. Mino, Kazuo, 2006. "Voracity vs. scale effect in a growing economy without secure property rights," Economics Letters, Elsevier, vol. 93(2), pages 278-284, November.
    9. Yohei Tenryu, 2013. "Interest in Private Assets and the Voracity Effect," KIER Working Papers 850, Kyoto University, Institute of Economic Research.
    10. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
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