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Dictators and oligarchs: A dynamic theory of contested property rights

  • Guriev, Sergei
  • Sonin, Konstantin

In an economy with weak economic and political institutions, the major institutional choices are made strategically by oligarchs and dictators. The conventional wisdom presumes that as rent-seeking is harmful for oligarchs themselves, institutions such as property rights will emerge spontaneously. We explicitly model a dynamic game between the oligarchs and a dictator who can contain rent-seeking. The oligarchs choose either a weak dictator (who can be overthrown by an individual oligarch) or a strong dictator (who can only be replaced via a consensus of oligarchs). In equilibrium, no dictator can commit to both: (i) protecting the oligarchs' property rights from the other oligarchs and (ii) not expropriating oligarchs himself. We show that a weak dictator does not limit rent-seeking. A strong dictator does reduce rent-seeking but also expropriates individual oligarchs. We show that even though eliminating rent-seeking is Pareto optimal, weak dictators do get appointed in equilibrium and rent-seeking continues. This outcome is especially likely when economic environment is highly volatile.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 1-2 (February)
Pages: 1-13

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Handle: RePEc:eee:pubeco:v:93:y:2009:i:1-2:p:1-13
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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