Dictators and Oligarchs: A Dynamic Theory of Contested Property Rights
Journal of Public Economics, Vol. 93, No. 1-2, pp. 1-13, July 2008
28 Pages Posted: 3 May 2007 Last revised: 22 Oct 2009
Date Written: July 7, 2008
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 property rights will emerge spontaneously. We explicitly model a dynamic game between the 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.
Keywords: property rights, oligarchs, non-democratic politics
JEL Classification: D72, H1, P16
Suggested Citation: Suggested Citation