OLIGARCHIC PROPERTY RIGHTS AND THE TRANSITION TO A MARKET ECONOMY IN RUSSIA

Serguey Braguinsky () and Roger B. Myerson

No 288, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We present a model in which capital assets can only be owned by members of a small politically-connected elite ("the oligarchs"), each member of which faces a given risk of being expropriated, and we investigate the implications of such an imperfection of property rights for the transition to a market economy. At the start of the transition, the oligarchs are long on local capital assets but short on safe deposits abroad. This causes a depression phase characterized by acute liquidity constraints and large capital outflows at the same time. As the oligarchs acquire enough safe deposits, the economy enters a recovery phase, still accompanied by capital outflows. The model can explain both the steep decline suffered by the Russian economy in the first 7 years of the transition to a market economy and the subsequent turnaround without relying on external factors. The decline could be avoided by allowing foreigners to own some domestic capital assets but home-country oligarchs may not be able to credibly collectively commit to such a reform

Keywords: oligarchies; property rights; transition economies; growth (search for similar items in EconPapers)
JEL-codes: F43 O10 P14 (search for similar items in EconPapers)
Date: 2006-12-03

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