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Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights

Sergei Guriev () and Konstantin Sonin ()

No w0116, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: In an economy with weak economic and political institutions, the major institutional choices are made strategically by oligarchs and dictators. The conventional wisdom presumes that as rent-seeking is harmful for oligarchs themselves, institutions such as enforcement of the property rights will emerge eventually. We explicitly model a dynamic game between oligarchs and a dictator, who can contain rent-seeking. The oligarchs choose either a weak dictator (who can be overthrown by an individual oligarch) or a strong dictator (who can only be replaced via a consensus of oligarchs). In equilibrium, no dictator can commit to both: (i) protecting the oligarchs?property rights from the other oligarchs and (ii) not expropriating oligarchs himself. We show that a weak dictator does not limit rent-seeking. A strong dictator does reduce rent-seeking but also expropriates individual oligarchs. We show that even though eliminating rent-seeking is Pareto optimal, weak dictators do get appointed in equilibrium and rent-seeking continues. This outcome is especially likely when economic environment is highly volatile.

New Economics Papers: this item is included in nep-pol
Date: 2007-09
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Related works:
Journal Article: Dictators and oligarchs: A dynamic theory of contested property rights (2009) Downloads
Working Paper: Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights (2008) Downloads
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