The Role of the Private Sector under Insecure Property Rights

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: differential game, Markov perfect equilibrium, voracity effect.
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Acemoglu, D. and Johnson, S. (2005), Unbundling Institutions, Journal of Political Econ- omy, 113, 949-995.

Acemoglu, D., Johnson, S., and Robinson, J, A. (2001), The Colonial Origins of Comparative Development: An Empirical Investigation, American Economic Review, 91, 1369- 1401.

Acemoglu, D., Johnson, S., and Robinson, J, A. (2001), A Theory of Political Transitions, American Economic Review, 91, 938-963.

Acemoglu, D., Johnson, S., and Robinson, J, A. (2005), Institutions as the Fundamental Cause of Long-Run Growth, in: Aghion, P. and Durlauf, S, N. (eds.), Handbook of Economic Growth, Vol 1A, North-Holland Publishers, Amsterdam, pp. 385-472.

Alesina, A., Develeeschauwer, A., Easterly, W., Kurlat, S., and Wacziarg, R. (2003), Fractionalizarion, Journal of Economic Growth, 8, 155-194.

Arezki, R. and Bru ̈ckner, M. (2012), Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect, Journal of International Economics, 86, 318-326.

Benhabib, J. and Radner, R. (1992), The Joint Exploitation of a Productive Asset: A Game-Theoretic Approach, Economic Theory, 2, 155-190.

Berkes, F. (1986), Local-Level Management and the Commons Problem: A Comparative Study of Turkish Coastal Fisheries, Marine Policy, 10, 215-229.

Di John, J. (2009), From Windfall to Curse? Oil and Industrialization in Venezuela, 1920 to the Present, University Park, PA: Penn State University Press.

Dutta, P, K. and Sundram, R, K. (1993), The Tragedy of the Commons, Economic Theory, 3, 413-426.

Easterly, W. and Levine, R. (1997), Africa’s Growth Tragedy: Policies and Ethnic Divisions, Quarterly Journal of Economics, 111, 1203-1250.

Easterly, W. and Levine, R. (2003), Tropics, Germs, and Crops: How Endowments Influence Economic Development, Journal of Monetary Economics, 50, 3-39.

Giles, D, E, A. (1999), Modelling the Hidden Economy and the Tax-Gap in New Zealand, University of Victoria, Victoria.

Gordon, H, S. (1954), The Economic Theory of a Common-Property Resource: The Fishery, Journal of Political Economy, 62, 124-142.

Haurie, A. and Pohjola, M. (1987), Efficient Equilibria in a Differential Game of Capitalism, Journal of Economic Dynamics and Control, 11, 65-75.

Itaya, J. and Mino, K. (2007), Insecure Property Rights and Long-Run Growth under Increasing Returns, Kyoto university RIMS Kokyuroku 1557, 45-57.

Justesen, M, K. (2014), Better Safe than Sorry: How Property Rights and Veto Players Jointly Affect Economic Growth, Comparative Politics, 46, 147-167.

Justesen, M, K. (2015), Making and Breaking Property Rights: Coalitions, Veto Players, and the Institutional Foundation of Markets, Journal of Institutional and Theoretical Economics, 171, 238-262.

Justesen, M, K. and Kurrild-Klitgaad, P. (2013), Institutional Interactions and Economic Growth: The Joint Effects of Property Rights, Veto Players and Democratic Capital, Public Choice, 157, 449-474.

Knack, S. and Keefer, P. (1995), Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures, Economics & Politics, 7, 207-227.

Lancaster, K. (1973), The Dynamic Inefficiency of Capitalism, Journal of Political Economy, 81, 1092-1109.

Lane, P, R. and Tornell, A. (1996), Power, Growth, and the Voracity Effect, Journal of Economic Growth 1, 213-241.

Levhari, D. and Mirman, L, J. (1980), The Great Fish War: An Example Using a Dynamic Cournot-Nash Solution, Bell Journal of Economics, 11, 322-334.

Lindner, I. and Strulik, H. (2004), Why not Africa?- Growth and Welfare Effects of Secure Property Rights, Public Choice 120, 143-167.

Lindner, I. and Strulik, H. (2008), Social Fractionalization, Endogenous Appropriation Norms, and Economic Development, Economica 75, 244-258.

Loayza, N, N. (1996), The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America, Carnegie-Rochester Conference Series on Public Policy 45, 129-162.

Long, N, V. and Sorger, G. (2006), Insecure Property Rights and Growth: The Role of Appropriation Costs, Wealth Effects, and Heterogeneity, Economic Theory 28, 513-529.

Lucas, R, E, Jr. (1988), On the Mechanics of Economic Development, Journal of Monetary Economics, 22, 3-42.

Markus, S. (2015), Property, Predation, and Protection: Piranha Capitalism in Russia and Ukraine, Cambridge University Press, New York.

Mino, K. (2006), Voracity vs. Scale Effect in a Growing Economy without Secure Property Rights, Economic Letters 93, 278-284.

Mulligan, C, B. and Sala-i-Martin, X. (1993), Transitional Dynamics in Two-Sector Models of Endogenous Growth, Quarterly Journal of Economics, 108, 739-773.

North, D, C. (1981), Structure and Change in Economic History, W. W. Norton and Co., New York.

North, D, C. (1990), Institutions, Institutional Change and Economic Performance, Cam- bridge University Press, Cambridge.

North, D, C. and Thomas, R, P. (1973), The Rise of the Western Worlds: A New Economic History, Cambridge University Press, Cambridge.

Ostrom, E. (1990), Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, Cambridge.

Pinkerton, E. (ed.), (1989), Co-operative Management of Local Fisheries: New Directions for Improved Management and Community Development, University of British Columbia Press, Vancouver.

Reinganum, J, F. and Stokey, N, L. (1985), Oligopoly Extraction of a Common Property Natural Resource: The Importance of the Period of Commitment in Dynamic Games, International Economic Review, 26, 161-173.

Rodrick, D., Subramanian, A., and Trebbi, F. (2004), Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development, Journal of Economic Growth, 9, 131-165.

Schneider, F. (2008), Shadow Economy, in: Rowley, C. and Schneider, F. (eds.), Readings in Public Choice and Constitutional Political Economy, Springer, pp. 511-532.

Schneider, F. and Enste, D, H. (2000), Shadow Economies around the World Size, Causes, and Consequences, IMF-Working Papers, no. 00/26: 56.

Strulik, H. (2012), Poverty, Voracity, and Growth, Journal of Development Economics 97, 396-403.

Tang, S, Y. (1992), Institutions and Collective Action: Self-governance in Irrigation, ICS Press, San Francisco.

Tornell, A. (1997), Economic Growth and Decline with Endogenous Property Rights, Journal of Economic Growth, 2, 219-250.

Tornell, A. (1998), Voracity and Growth in Discrete Time, Economics Letters, 62, 139-145.

Tornell, A. and Lane, P, R. (1999), The Voracity Effect, American Economic Review 89, 22-46.

Tornell, A. and Velasco, A. (1992), The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?, Journal of Political Economy 100, 1208-1230.

Uzawa, H. (1965), Optimal Technical Change in an Aggregative Model of Economic Growth, International Economic Review, 6, 18-31.

van der Ploeg, F. (2010), Voracious Transformation of a Common Natural Resource into Productive Capital, International Economic Review, 51, 365-381.