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Boondoogles and expropriation : rent-sseking and policy distortion when property rights are insecure

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Author Info

  • Keefer, Philip
  • Knack, Stephen

Abstract

Most analyses of property rights and economic development point to the negative influence of insecure property rights on private investment. The authors focus instead on the largely unexamined effects of insecure property rights on government policy choices. They identify one significant anomaly-dramatically higher public investment in countries with insecure property rights-and use it to make the following broad claims about insecure property rights; 1) They increase rent-seeking. 2) They may reduce the incentives of governments to use tax revenues for productive purposes, such as public investment. 3) They do so whether one regards the principal problem of insecure property rights as the maintenance of law and order, which government spending can potentially remedy, or as the threat of expropriation by government itself, and therefore not remediable by government spending. The authors present substantial empirical evidence to support these claims.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2910.

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Date of creation: 31 Oct 2002
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Handle: RePEc:wbk:wbrwps:2910

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Keywords: Environmental Economics&Policies; International Terrorism&Counterterrorism; Labor Policies; Economic Theory&Research; Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Theory&Research; National Governance; Public Sector Economics&Finance; Land and Real Estate Development;

References

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  1. Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
  3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  4. Pritchett, Lant, 2000. " The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital," Journal of Economic Growth, Springer, vol. 5(4), pages 361-84, December.
  5. 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.
  6. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  7. Skaperdas, S., 1991. "Cooperation, Conflict And Power In The Absence Of Property Rights," Papers 90-91-06a, California Irvine - School of Social Sciences.
  8. David Stasavage, 2002. "Credible Commitment in Early Modern Europe: North and Weingast Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 155-186, April.
  9. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers 77, China Economics and Management Academy, Central University of Finance and Economics.
  10. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  11. J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department.
  12. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  13. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
  14. Kamien, Morton I & Schwartz, Nancy L, 1978. "Potential Rivalry, Monopoly Profits and the Pace of Inventive Activity," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 547-57, October.
  15. Bellettini, Giorgio & Berti Ceroni, Carlotta, 2000. "Financial Liberalization, Property Rights, and Growth in an Overlapping-Generations Model," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 348-59, May.
  16. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
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Citations

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Cited by:
  1. Clémence Vergne, 2011. "Democracy, Elections and Allocation of Public Expenditure in Developing Countries," Working Papers halshs-00564572, HAL.
  2. Causa, Orsetta & Cohen, Daniel & Soto, Marcelo, 2006. "Lucas and Anti-Lucas Paradoxes," CEPR Discussion Papers 6013, C.E.P.R. Discussion Papers.
  3. Englmaier, Florian & Reisinger, Markus, 2006. "Information, Coordination, and the Industrialization of Countries," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 87, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Khemani, Stuti, 2004. "Political cycles in a developing economy: effect of elections in the Indian States," Journal of Development Economics, Elsevier, vol. 73(1), pages 125-154, February.
  5. Keefer, Philip & Khemani, Stuti, 2003. "Democracy, public expenditures, and the poor," Policy Research Working Paper Series 3164, The World Bank.

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