Insecure Property Rights and the Missing Middle

Aram Grigoryan and Mattias K Polborn

No 7203, CESifo Working Paper Series from CESifo

Abstract: We analyze a theoretical model in which entrepreneurs’ property rights are threatened by “raiders” who can challenge them to a contest for control of their firms. Entrepreneurs have heterogeneous productivity, and decide how much capital to invest before raiders decide whom to attack. In equilibrium, low productivity entrepreneurs are unaffected by the existence of raiders, while mid- and high-productivity entrepreneurs suffer. However, while raiders essentially act like a tax for the highest productivity entrepreneurs, the investment behavior of mid-productivity entrepreneurs who try to avoid an attack is more drastically affected. Our model provides a novel theoretical explanation for the “missing middle” observed in many countries with insecure property rights.

Keywords: property rights; rent-seeking; corruption; missing middle (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ent and nep-mic
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