Property Rights, Predation, and Productivity

We develop a neoclassical growth model with imperfect property rights in which predation entails both waste of resources and deadweight losses, the latter becoming very large when the predation rate is high. According to the model, in the United States, the welfare costs of crime represent a loss of 18.6% of consumption per capita. For a country in the average of the last decile of the distribution of an index of business costs of crime across 94 countries, this loss is 57.8%. Moreover, a one standard deviation increase in the quality index of formal institutions securing property rights increases GDP per worker by 23% for a country with an institutional quality index equal to the average of the last decile of its distribution.