Property rights and long‐run capital

Proprietary capital falling into the public domain inefficiently decreases capital accumulation. As a consequence, the market steady state consumption underperforms the planner's by 4.6%–9.1% in a neoclassical infinitely‐lived agents economy with constant returns to scale and standard empirically supported parameters. The results extend robustly to an overlapping generations economy, for which the gap is 10.5% when similarly parametrized. A policy decentralizing, in the latter, the planner's steady state instead consists of (i) subsidizing the rental rate of private capital at its depreciation rate, and (ii) taxing households' negative net position between, on the one hand, firm and depreciated capital ownership, and on the other, borrowing. Under this policy, the necessary tax rate on households' negative net position is smaller the bigger the absolute value of the latter and, hence, the bigger the corresponding monetary real balances held by households.