Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach

Daron Acemoglu and Thierry Verdier

No 1494, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider an economy where property rights are necessary to ensure sufficient rewards to ex-ante investments. Because enforcement of property rights influences the ex-post distribution of rents, there is room for corruption. We characterize the optimal organization of society and the optimal degree of property rights enforcement subject to incentive constraints of the agents. We find that three frequently mentioned government failures arise quite naturally as part of the optimal mechanism: i) rents to government employees; ii) corruption; and iii) misallocation of talent. Therefore, these observations are not by themselves proof of government failure. We also discover that the general equilibrium aspect of our model leads to a number of new results: there may exist a free lunch such that over a certain range it is possible to simultaneously reduce corruption and the misallocation of talent, and increase investment. It will also often be the case that bureaucracies will impose a certain amount of self discipline.

Keywords: Allocation of Talent; Corruption; Development; Law Enforcement; Property Rights (search for similar items in EconPapers)
JEL-codes: D22 H40 (search for similar items in EconPapers)
Date: 1996-10
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach (1998)
Working Paper: Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach (1996)
Working Paper: Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach (1996)
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