IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2003-544.html
   My bibliography  Save this paper

Why the Rich May Favor Poor Protection of Property Rights

Author

Listed:
  • Konstantin Sonin

Abstract

In unequal societies, the rich might benefit from shaping economic institutions into their favor. This paper analyzes the dynamics of institutional subversion focusing on one particular institution, public protection of property rights. If this institution is imperfect, agents have incentives to invest in private protection of property rights. With economies of scale in private protection, rich agents have a significant advantage: they could expropriate other agents using their private protection capacities. Ability to maintain private protection system makes the rich natural opponents of full protection of property rights provided by the state. Such an environment does not allow grass-roots demand to drive development of new market-friendly institutions (such as public protection of property rights). The economy as a whole is stuck in a ???bad??? long-run equilibrium with low growth rate, high inequality, and wide-spread rent-seeking. The Russian ???oligarchs??? of 1990s, a handful of politically powerful agents that controlled large stakes of newly privatized property, we re the major motivation for this paper.

Suggested Citation

  • Konstantin Sonin, 2002. "Why the Rich May Favor Poor Protection of Property Rights," William Davidson Institute Working Papers Series 544, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2003-544
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39929/2/wp544.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    2. repec:umd:umdeco:murrelllaw is not listed on IDEAS
    3. Johnson, Simon & Kaufmann, Daniel & McMillan, John & Woodruff, Christopher, 2000. "Why do firms hide? Bribes and unofficial activity after communism," Journal of Public Economics, Elsevier, vol. 76(3), pages 495-520, June.
    4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-414, May.
    5. Berkowitz, Daniel & DeJong, David N., 1999. "Russia's internal border," Regional Science and Urban Economics, Elsevier, vol. 29(5), pages 633-649, September.
    6. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
    7. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
    8. Verdier, Thierry, 1994. "Models of political economy of growth: A short survey," European Economic Review, Elsevier, vol. 38(3-4), pages 757-763, April.
    9. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    10. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    11. Edward L. Glaeser & Andrei Shleifer, 2002. "Legal Origins," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1193-1229.
    12. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
    13. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
    14. Shleifer, Andrei & La Porta, Rafael & Lopez-De-Silanes, Florencio & Vishny, Robert W., 1997. "Legal Determinants of External Finance," Scholarly Articles 30728041, Harvard University Department of Economics.
    15. Raghuram G. Rajan & Luigi Zingales, 2000. "The Great Reversals: The Politics of Financial Development in the 20th Century," OECD Economics Department Working Papers 265, OECD Publishing.
    16. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2003. "Courts," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 453-517.
      • Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, "undated". "Courts," Working Paper 19471, Harvard University OpenScholar.
    17. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186.
    18. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-739, September.
    19. Polyakov, Evgeny, 2001. "Changing trade patterns after conflict resolution in the South Caucasus," Policy Research Working Paper Series 2593, The World Bank.
    20. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2002. "Courts: the Lex Mundi Project," NBER Working Papers 8890, National Bureau of Economic Research, Inc.
    21. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92, National Bureau of Economic Research, Inc.
    22. Luttmer,Erzo F.P., 2001. "Measuring poverty dynamics and inequality in transition economies - disentangling real events from noisy data," Policy Research Working Paper Series 2549, The World Bank.
    23. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons Form The East Asian Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(3), pages 40-48, September.
    24. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Contract Enforcement in Transition," CEPR Discussion Papers 2081, C.E.P.R. Discussion Papers.
    25. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    26. Mr. Arvind Subramanian & Mr. Francesco Trebbi & Mr. Dani Rodrik, 2002. "Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 2002/189, International Monetary Fund.
    27. Ksenia Yudaeva & Maria Gorban & Vladimir Popov, 2004. "Down and up the stairs: paradoxes of Russian economic growth," Chapters, in: Gur Ofer & Richard Pomfret (ed.), The Economic Prospects of the CIS, chapter 2, Edward Elgar Publishing.
    28. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    29. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    30. David D. Li, 1996. "A Theory of Ambiguous Property Rights in Transition Economies: The Case of the Chinese Non-State Sector," William Davidson Institute Working Papers Series 8, William Davidson Institute at the University of Michigan.
    31. Kathryn Hendley & Peter Murrell & Randi Ryterman, 2000. "Law, Relationships and Private Enforcement: Transactional Strategies of Russian Enterprises," Europe-Asia Studies, Taylor & Francis Journals, vol. 52(4), pages 627-656.
    32. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
    33. Polterovich, Victor, 2001. "Rent Seeking, Tax Policy, and Economic Growth," MPRA Paper 20058, University Library of Munich, Germany.
    34. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    35. Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521438827, November.
    36. Leonid Polishchuk & Alexei Savvateev, 2004. "Spontaneous (non)emergence of property rights," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 103-127, March.
    37. Berkowitz, Daniel & DeJong, David N., 2002. "Accounting for growth in post-Soviet Russia," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 221-239, March.
    38. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Scholarly Articles 30747194, Harvard University Department of Economics.
    39. Simon Johnson & John McMillan & Christopher Woodruff, 2000. "Entrepreneurs and the Ordering of Institutional Reform: Poland, Slovakia, Romania, Russia and Ukraine Compared," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 1-36, March.
    40. Durham, Yvonne & Hirshleifer, Jack & Smith, Vernon L., 2008. "The Paradox of Power," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 16, pages 127-137, Elsevier.
    41. Robert D. Tollison, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602, November.
    42. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    43. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 42(1), pages 1-57, April.
    44. Earle, John S. & Peter, Klara Sabirianova, 2000. "Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In," IZA Discussion Papers 196, Institute of Labor Economics (IZA).
    45. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-330, March.
    46. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1275-1288, December.
    47. Skaperdas, S. & Syropoulos, C., 1991. "The Distribution of Income in the Presence of Directly Unproductive," Papers 90-92-10, California Irvine - School of Social Sciences.
    48. Shleifer, Andrei, 1997. "Government in transition," European Economic Review, Elsevier, vol. 41(3-5), pages 385-410, April.
    49. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
    50. Gregory J. Brock, 1998. "Foreign direct investment in Russia's regions 1993‐95. Why so little and where has it gone?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 349-360, November.
    51. Glaeser, Edward Ludwig & Shleifer, Andrei, 2003. "The Rise of the Regulatory State," Scholarly Articles 30747197, Harvard University Department of Economics.
    52. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    53. Li, David D., 1996. "A Theory of Ambiguous Property Rights in Transition Economies: The Case of the Chinese Non-State Sector," Journal of Comparative Economics, Elsevier, vol. 23(1), pages 1-19, August.
    54. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1997. "Privatizing Russia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522284, December.
    55. Sonin, Konstantin, 1999. "Inequality, Property Rights Protection, and Economic Growth in Transition Economies: Theory and Russian Evidence," CEPR Discussion Papers 2300, C.E.P.R. Discussion Papers.
    56. Skaperdas, Stergios & Syropoulos, Constantinos, 1997. "The Distribution of Income in the Presence of Appropriative Activities," Economica, London School of Economics and Political Science, vol. 64(253), pages 101-117, February.
    57. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," Scholarly Articles 30725664, Harvard University Department of Economics.
    58. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages 22-49, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sonin, Konstantin, 1999. "Inequality, Property Rights Protection, and Economic Growth in Transition Economies: Theory and Russian Evidence," CEPR Discussion Papers 2300, C.E.P.R. Discussion Papers.
    2. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    3. Constantin Sonin, 2000. "Private Protection of Property Rights, Inequality, and Economic Growth in Transition Economies," Econometric Society World Congress 2000 Contributed Papers 1300, Econometric Society.
    4. Ksenia Yudaeva, 2002. "Globalization and Inequality in CIS Countries: Role of Institutions," Working Papers w0025, Center for Economic and Financial Research (CEFIR).
    5. Anton Miglo, 2011. "The Development of Property Rights for Intellectual Property," Journal of Economics and Behavioral Studies, AMH International, vol. 3(4), pages 224-234.
    6. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    7. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    8. Bernard Yeung & Randall Morck & Daniel Wolfenzon, 2004. "Corporate Governance, Economic Entrenchment and Growth," Working Papers 04-21, New York University, Leonard N. Stern School of Business, Department of Economics.
    9. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    10. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    11. Ogus, Anthony, 2004. "The Importance of Legal Infrastructure for Regulation (and Deregulation) in Developing Countries," Centre on Regulation and Competition (CRC) Working papers 30603, University of Manchester, Institute for Development Policy and Management (IDPM).
    12. Fischer, Ronald & Huerta, Diego, 2021. "Wealth inequality and the political economy of financial and labour regulations," Journal of Public Economics, Elsevier, vol. 204(C).
    13. Di Vita, Giuseppe, 2008. "Differences in pollution levels among civil law countries: A possible interpretation," Energy Policy, Elsevier, vol. 36(10), pages 3774-3786, October.
    14. Buchen, Clemens, 2010. "Emerging economic systems in Central and Eastern Europe – a qualitative and quantitative assessment," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 37141, February.
    15. J. Rosser & Marina Rosser, 2008. "A critique of the new comparative economics," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 21(1), pages 81-97, March.
    16. Abdoul’ Mijiyawa, 2013. "Determinants of property rights institutions: survey of literature and new evidence," Economics of Governance, Springer, vol. 14(2), pages 127-183, May.
    17. Mthanti, Thanti & Ojah, Kalu, 2017. "Institutions, Human Capital and Entrepreneurial Orientation (EO): Implications for Growth Strategy," MPRA Paper 89551, University Library of Munich, Germany.
    18. Gradstein, Mark, 2004. "Inequality, Democracy and the Emergence of Institutions," CEPR Discussion Papers 4187, C.E.P.R. Discussion Papers.
    19. Nobuhiro Mizuno & Katsuyuki Naito & Ryosuke Okazawa, 2017. "Inequality, extractive institutions, and growth in nondemocratic regimes," Public Choice, Springer, vol. 170(1), pages 115-142, January.
    20. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.

    More about this item

    Keywords

    economic institutions; property rights; political economy; inequality;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2003-544. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.