The Role of Oligarchic Property Rightsa Macroeconomic Model of Russian Transition

31 Pages Posted: 29 Jul 2007

See all articles by Roger Myerson

Roger Myerson

University of Chicago - Department of Economics

Abstract

We present a model in which capital assets can only be owned by members of a relatively 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 parsimoniously explain both the steep decline suffered by the Russian economy in the first stage of its transition to a market economy and the subsequent turnaround. The decline could be avoided by allowing foreigners to own some domestic capital assets, but home-country oligarchs may not be able credibly to collectively commit to such a reform.

Suggested Citation

Myerson, Roger B., The Role of Oligarchic Property Rightsa Macroeconomic Model of Russian Transition. Economics of Transition, Vol. 15, Issue 1, pp. 77-107, January 2007, Available at SSRN: https://ssrn.com/abstract=968809 or http://dx.doi.org/10.1111/j.1468-0351.2007.00280.x

Roger B. Myerson

University of Chicago - Department of Economics ( email )

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Chicago, IL 60637
United States

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