taming the (not so) stationary bandit: turnover of ruling elites and protection of property rights...
DESCRIPTION
Democracy and Property Rights Democracy favors secured property rights (North, Wallis, Weingast, 2009) but could undermine property rights by yielding to populism or narrow interests (Lizzeri, Persico, 2005)TRANSCRIPT
Taming the (Not So) Stationary Bandit: Turnover of Ruling Elites and Protection of Property Rights
Leonid Polishchuk Georgy Suynyaev
Higher School of Economics, Moscow
Factors of Property Rights Protection
• History (Acemoglu et al., 2001)• Geography (Sokoloff and Engerman, 2000; Torvik
et al., 2006)• Culture and values (Tabellini, 2008)• Economic conditions and structure (Clague et al.,
1996)• Social and economic inequality (Keefer and Knack,
2002)• Political system
Democracy and Property Rights
Democracy favors secured property rights (North, Wallis, Weingast, 2009) ...
... but could undermine property rights by yielding to populism or narrow interests (Lizzeri, Persico, 2005)
“Stationary Bandit” as Property Rights Guardian
Both political competition and political monopoly could deliver efficient market-supporting institutions (Acemoglu, Robinson, 2006)
Secured property rights could be upheld by authoritarian regimes (Glaeser et al., 2004)
“Stationary bandit” has the incentive to maintain good investment climate and enabling conditions for private enterprise (Olson, 1993)
Regime Durability and Security of Property Rights
Stable political regimes develop a long-term perspective and can earn significant returns to investments in secured property rights (McGuire, Oslon, 1996). Regime durability could thus be a solution to the credible commitment problem (Besley, Ghatak, 2010)
Data do not support positive association between property rights protection and long political tenure
Post-communist reforms were more successful in countries with quick succession of governments (Hellman, 1998)
Alternatives to Democratic Accountability
Long political tenure does not eliminate a conflict of interest between the society and a “stationary bandit”
Ownership of market assets makes the regime sensitive to the quality of its economic policies (McGuire, Olson, 1996)
Such link however is not automatic since the regime can violate the “equal treatment” assumption (“For my friends – anything, for my enemies – the law”)
Taming of Partially Stationary Bandit
Rotation of ruling elites is a missing link in McGuire-Olson’s argument
Ruling elites’ ownership of substantial market assets that cannot be easily evacuated and non-negligible probability of losing power create the incentives to protect property rights that can substitute for democratic accountability
Such incentives produce a non-democratic surrogate for “property owning democracy” (Rawls, 2001)
Rotation of Ruling Elites and Quality of Institutions: Two Mechanisms
1. Efficiency-enhancing political competition (Stigler, 1972): competing political parties that are vying for voters’ support offer market-supporting institutions that rule out property expropriation
2. Non-democratic mechanism: ruling elites support property rights protection (e.g. by preserving court independence) as an institutional insurance for their own assets in case of losing power
Mechanisms of Property Rights Maintenance
• Elite settlements (Burton, Higley, 1987) ) • Elite pacts (O’Donnell, Schmitter, 1986) • Constitutional design (Aghion, Alesina, Trebbi,
2004)
Credible commitment without democracy
• Institutionalized ruling parties (Gehlbach and Keefer, 2011)
• Media freedom (Egorov, Guriev, Sonin, 2006)• Economic decentralization (Che and Qian,
1998)• Constraining institutions (Acemoglu et al.,
2005, Besley and Kudamatsu, 2007)
The Model
- expropriated share of returns to privately owned assets; - probability of staying in power for over t years (Poisson process); - share of assets privately owned by ruling elites
Utility function:
Selection of Property Rights Regime
Model Analysis
Protection of property rights increases in the turnover rate of ruling elites
The strength of this effect monotonically increases in the size of ruling elites’ market assets
These two factors complement each other in ensuring property rights protection
When Are Property Rights Fully Secure?
When ruling elites’ rotation rates and/or elites’ share of market assets are sufficiently high:
Illustration
lambdaW
Bringing Theory to Data
Panel comprising 58 developed and developing nations for the period from 1975 through 2005
Data Sources: • Fraser Institute’s Legal Structure and Security of
Property Rights • Database of Political Institutions (Keefer et al., 2010) • Polity IV Database • UNU-WIDER’s World Income Inequality Database
Regression Model
Estimation 1: Full Sample (1) (2) (3) (4) (5)
VARIABLES fullprob_stabns 0.357* 0.331** 0.333** 0.347*** 0.381***
(0.20) (0.14) (0.14) (0.11) (0.11)GDP_per_capita 8.39e-05*** 8.25e-05*** 8.35e-05*** 8.68e-05*** 8.66e-05***
(0.00) (0.00) (0.00) (0.00) (0.00)population 2.37e-06 8.27e-07 8.52e-07 1.13e-06***
(0.00) (0.00) (0.00) (0.00)fuel_export -0.00845 -0.0118* -0.0118* -0.0110*** -0.0115***
(0.01) (0.01) (0.01) (0.00) (0.00)metal_export -0.00453 -0.00694
(0.01) (0.01)secondary_schooling 0.0229*** 0.0237*** 0.0237*** 0.0231*** 0.0222***
(0.01) (0.01) (0.00) (0.00) (0.00)ethnic_frac -0.00235 0.00138 0.000726
(0.01) (0.01) (0.01)leg_british 0.268 -0.0364
(0.37) (0.32)leg_french -0.415 -0.596*** -0.592*** -0.382*** -0.432***
(0.37) (0.15) (0.13) (0.145) (0.13)Observations 247 247 247 286 286Number of id 41 41 41 54 54
Estimation 2: Democratic Accountability or Self-Preservation Instinct
(1) (2) (3) (4) (5) (6)VARIABLES dem dem dem less dem less dem less demprob_stabns 0.264* 0.260* 0.326* 0.683*** 0.654*** 0.641***
(0.16) (0.157) (0.17) (0.14) (0.14) (0.14)GDP_per_capita 9.06e-05*** 9.13e-05*** 9.41e-05*** 1.76e-05 1.88e-05 2.11e-05
(0.00) (1.48e-05) (0.00) (0.00) (0.00) (0.00)population 9.33e-07** 9.40e-07** 1.01e-06*** -3.54e-07 2.80e-07 3.59e-07
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)fuel_export -0.0153* -0.0154* -0.0151* 0.00301 0.00327 0.00268
(0.01) (0.01) (0.01) (0.00) (0.00) (0.00)metal_export -0.00648 -0.00656 -0.000993 -0.00474
(0.01) (0.01) (0.01) (0.01)secondary_schooling 0.0199*** 0.0198*** 0.0189*** 0.0206* 0.02 0.0204
(0.01) (0.01) (0.00) (0.01) (0.01) (0.01)ethnic_frac 0.00290 0.00133 -0.00602 0.00513 0.00481
(0.00) (0.00) (0.01) (0.01) (0.02)leg_british -0.207 0.861
(0.22) (0.6)leg_french -0.447*** -0.329*** -0.304*** -0.501
(0.12) (0.09) (0.1) (0.3)Observations 166 166 179 81 81 81Number of id 35 35 41 20 20 20
Estimation 3: The Role of Elites’s Assets (1) (2) (3) (4) (5) (6)
VARIABLES gini>50 gini>50 gini>50 gini<50 gini<50 gini<50prob_stabns 0.628*** 0.567** 0.588** -0.0318 -0.0356 0.0341
(0.22) (0.21) (0.21) (0.21) (0.21) (0.23)GDP_per_capita 7.01e-05* 6.90e-05* 7.04e-05* 7.63e-05*** 8.97e-05*** 0.000116***
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)population 1.46e-07 2.41e-07 5.24e-07 1.24e-06
(0.00) (0.00) (0.00) (0.00)fuel_export -0.0121 -0.0129* -0.0125* -0.0177*** -0.0207*** -0.0166***
(0.00) (0.01) (0.01) (0.00) (0.00) (0.00)metal_export -0.00657 -0.00769 -0.00420
(0.01) (0.01) (0.01)secondary_schooling 0.0272** 0.0288*** 0.0290*** 0.0157*** 0.0148**
(0.01) (0.01) (0.01) (0.01) (0.01)ethnic_frac 0.00893 0.0115 0.0117 -0.00517 -0.00467 -0.00100
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)leg_british 0.255 0.132
(0.33) (0.45)leg_french -0.0510 -0.809***
(0.33) (0.24)Observations 119 119 119 127 127 137Number of id 39 39 39 37 37 38
Estimation 4: Direction of Causality VARIABLES
property_rights_1
property_rights_1
property_rights_1
property_rights_1
prob_stabns_1
prob_stabns_1
prob_stabns_0 0.801* 0.946** 0.877* 1.075*(0.75) (0.45) (0.46) (0.95)
property_rights_0 -0.0235 -0.0211(0.02) (0.02)
fuel_export_0 -0.0267*** -0.0248*** -0.0246*** -0.00203** -0.00218**(0.00) (0.00) (0.00) (0.00) (0.00)
leg_french -0.934** -0.851*** -0.835*** -1.528*** 0.0731* 0.0593(0.33) (0.24) (0.23) (0.28) (0.03) (0.04)
secondary_schooling_0 -0.00399 0.00113(0.02) (0.00)
population_0 -8.37e-07 -4.99e-07 -4.26e-07 3.46e-07** 2.92e-07**(0.00) (0.00) (0.00) (0.00) (0.00)
GDP_per_capita_0 0.000145*** 0.000148*** 0.000149*** 0.000119** -4.39e-06** -3.11e-06(0.00) (0.00) (2.30e-05) (0.00) (0.00) (0.00)
leg_socialist
eth_frac_0 -0.00606(0.01)
Observations 45 48 48 42 45 48R-squared 0.737 0.733 0.732 0.686 0.290 0.278
How to Tame a Stationary Bandit? Make Her Less Stationary …
Rotation of ruling elites and their possession of market assets create incentives conducive for property rights protection
Similar incentives can improve not just economic, but political institutions as well, and ultimately lead to the emergence of representative democracy (Lizzeri, Persico, 2004)