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The Role of the Private Sector under Insecure Property Rights

Tenryu, Yohei (2013): The Role of the Private Sector under Insecure Property Rights.

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Abstract

Voracious behavior is one of the excess uses of the commons. It is known that the voracity effect can be observed in the economy with common and private capital. We explore another cause of voracious behavior and investigate the effects of voracious behavior on the economy. For this purpose, we introduce a new direction of capital flow. A government mandates that all groups invest their private capital in the common sector to mitigate the effects of excess use of the commons. We show theoretically that there is no standard voracity effect in the sense that Tornell and Lane (1999) define and that a group's equilibrium consumption strategy is the Markov control-state complementarity. We observe numerically that an increase in the contribution of the private sector into the common sector has a negative effect on growth. This implies that the policy for preservation of the commons leads to the harmful effect on the economy.

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