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Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights

  • Konstantin Sonin

    (New Economic School)

  • Sergei Guriev

    (New Economic School)

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 enforcement of the property rights will emerge eventually. We explicitly model a dynamic game between 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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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 1072.

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Date of creation: 2008
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Handle: RePEc:red:sed008:1072
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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