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Property Rights, Extortion and the Misallocation of Talent

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  • Ranasinghe, Ashantha

Abstract

Extortion is a severe obstacle to doing business in many countries, varies both in its frequency and magnitude across establishments. This paper presents a model of extortion to account for these features and assess its quantitative effects. In the model, entrepreneur capital is subject to extortion which affects both the extensive and intensive margins of entrepreneurship. Despite common property rights, extortion rates arise endogenously and are hump-shaped in entrepreneur ability. To discipline the quantitative analysis, the model is calibrated to match establishment-level evidence related to extortion in Poland and yields a number of implications broadly consistent with establishment-level facts in developing economies. For measures of property rights within a plausible range, output losses can be upwards of 10 percent.

Suggested Citation

  • Ranasinghe, Ashantha, 2015. "Property Rights, Extortion and the Misallocation of Talent," MPRA Paper 71926, University Library of Munich, Germany, revised Jun 2015.
  • Handle: RePEc:pra:mprapa:71926
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    Cited by:

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    2. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    3. Diego Restuccia, 2013. "The Latin American Development Problem: An Interpretation," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 69-108, January.
    4. Lavinia Piemontese, 2020. "Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering," Working Papers 2025, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Ranasinghe, Ashantha & Restuccia, Diego, 2018. "Financial frictions and the rule of law," Journal of Development Economics, Elsevier, vol. 134(C), pages 248-271.
    6. Diego Restuccia, 2011. "Recent developments in economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(3Q), pages 329-357.
    7. Oguzoglu Umut & Ranasinghe Ashantha, 2017. "Crime and Establishment Size: Evidence from South America," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-17, October.
    8. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
    9. Lopez-Martin, Bernabe & Perez-Reyna, David, 2021. "Contracts, firm dynamics, and aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    10. Maribel Guerrero & David Urbano, 2020. "Institutional conditions and social innovations in emerging economies: insights from Mexican enterprises’ initiatives for protecting/preventing the effect of violent events," The Journal of Technology Transfer, Springer, vol. 45(4), pages 929-957, August.
    11. Asatryan, Zareh & Baskaran, Thushyanthan & Birkholz, Carlo & Gomtsyan, David, 2021. "Favoritism and firms: Micro evidence and macro implications," ZEW Discussion Papers 21-031, ZEW - Leibniz Centre for European Economic Research.
    12. Lavinia Piemontese, 2021. "Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering," Working Papers halshs-02928546, HAL.
    13. Ranasinghe, Ashantha, 2020. "Misallocation across Establishment Gender," Working Papers 2020-2, University of Alberta, Department of Economics.
    14. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.

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    More about this item

    Keywords

    extortion; misallocation; establishment size; property rights;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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