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Oligarchic Property Rights And The Transition To A Market Economy In Russia

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  • Serguey Braguinsky

    ()
    (SUNY Buffalo)

  • Roger Myerson

Abstract

We present a model in which capital assets can only be owned by members of a small politically-connected elite ("the oligarchs"), each member of which faces a given risk of being expropriated, and we investigate the implications of such an imperfection of property rights for the transition to a market economy. At the start of the transition, the oligarchs are long on local capital assets but short on safe deposits abroad. This causes a depression phase characterized by acute liquidity constraints and large capital outflows at the same time. As the oligarchs acquire enough safe deposits, the economy enters a recovery phase, still accompanied by capital outflows. The model can explain both the steep decline suffered by the Russian economy in the first 7 years of the transition to a market economy and the subsequent turnaround without relying on external factors. The decline could be avoided by allowing foreigners to own some domestic capital assets but home-country oligarchs may not be able to credibly collectively commit to such a reform

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 288.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:288

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Keywords: oligarchies; property rights; transition economies; growth;

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