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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

It is well known that the so-called voracity effect can be observed in an economy with a weak property rights system. Voracious behavior is regarded as one of the excess uses of the common assets. In this paper, we seek to examine voracious behavior from a different perspective by introducing a new direction of capital flow: from the private sector to the common sector. A government mandates that all competing interest groups invest their private capital in the common sector to mitigate the effects of excess use of the commons. In this situation, we study how this capital flow affects the voracious behavior of the groups and the growth rate of the economy. The main findings are that, while there is no standard voracity effect, an increase in the contribution of the private sector into the common sector causes more voracious behavior and thus slows economic growth. This suggests that policies designed to preserve the commons can lead to a harmful effect on the economy.

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