Download Democracy and Property Rights

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 marketsupporting 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 nonnegligible 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
W
lambda
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
VARIABLES
prob_stabns
GDP_per_capita
population
fuel_export
metal_export
secondary_schooling
ethnic_frac
leg_british
leg_french
Observations
Number of id
(1)
full
0.357*
(0.20)
8.39e-05***
(0.00)
2.37e-06
(0.00)
-0.00845
(0.01)
-0.00453
(0.01)
0.0229***
(0.01)
-0.00235
(0.01)
0.268
(0.37)
-0.415
(0.37)
247
41
(2)
(3)
(4)
(5)
0.331**
(0.14)
8.25e-05***
(0.00)
8.27e-07
(0.00)
-0.0118*
(0.01)
-0.00694
(0.01)
0.0237***
(0.01)
0.00138
(0.01)
-0.0364
(0.32)
-0.596***
(0.15)
247
41
0.333**
(0.14)
8.35e-05***
(0.00)
8.52e-07
(0.00)
-0.0118*
(0.01)
0.347***
(0.11)
8.68e-05***
(0.00)
1.13e-06***
(0.00)
-0.0110***
(0.00)
0.381***
(0.11)
8.66e-05***
(0.00)
0.0237***
(0.00)
0.000726
(0.01)
0.0231***
(0.00)
0.0222***
(0.00)
-0.592***
(0.13)
247
41
-0.382***
(0.145)
286
54
-0.432***
(0.13)
286
54
-0.0115***
(0.00)
Estimation 2: Democratic Accountability or SelfPreservation Instinct
VARIABLES
prob_stabns
GDP_per_capita
population
fuel_export
metal_export
secondary_schooling
ethnic_frac
leg_british
leg_french
Observations
Number of id
(1)
dem
0.264*
(0.16)
9.06e-05***
(0.00)
9.33e-07**
(0.00)
-0.0153*
(0.01)
-0.00648
(0.01)
0.0199***
(0.01)
0.00290
(0.00)
-0.207
(0.22)
-0.447***
(0.12)
166
35
(2)
dem
0.260*
(0.157)
9.13e-05***
(1.48e-05)
9.40e-07**
(0.00)
-0.0154*
(0.01)
-0.00656
(0.01)
0.0198***
(0.01)
0.00133
(0.00)
(3)
dem
0.326*
(0.17)
9.41e-05***
(0.00)
1.01e-06***
(0.00)
-0.0151*
(0.01)
-0.329***
(0.09)
166
35
-0.304***
(0.1)
179
41
0.0189***
(0.00)
(4)
less dem
0.683***
(0.14)
1.76e-05
(0.00)
-3.54e-07
(0.00)
0.00301
(0.00)
-0.000993
(0.01)
0.0206*
(0.01)
-0.00602
(0.01)
0.861
(0.6)
-0.501
(0.3)
81
20
(5)
less dem
0.654***
(0.14)
1.88e-05
(0.00)
2.80e-07
(0.00)
0.00327
(0.00)
-0.00474
(0.01)
0.02
(0.01)
0.00513
(0.01)
(6)
less dem
0.641***
(0.14)
2.11e-05
(0.00)
3.59e-07
(0.00)
0.00268
(0.00)
81
20
81
20
0.0204
(0.01)
0.00481
(0.02)
Estimation 3: The Role of Elites’s Assets
VARIABLES
prob_stabns
GDP_per_capita
population
fuel_export
metal_export
secondary_schooling
ethnic_frac
leg_british
leg_french
Observations
Number of id
(1)
gini>50
0.628***
(0.22)
7.01e-05*
(0.00)
1.46e-07
(0.00)
-0.0121
(0.00)
-0.00657
(0.01)
0.0272**
(0.01)
0.00893
(0.01)
0.255
(0.33)
-0.0510
(0.33)
119
39
(2)
gini>50
0.567**
(0.21)
6.90e-05*
(0.00)
2.41e-07
(0.00)
-0.0129*
(0.01)
-0.00769
(0.01)
0.0288***
(0.01)
0.0115
(0.01)
(3)
gini>50
0.588**
(0.21)
7.04e-05*
(0.00)
0.0290***
(0.01)
0.0117
(0.01)
119
39
119
39
-0.0125*
(0.01)
(4)
gini<50
-0.0318
(0.21)
7.63e-05***
(0.00)
5.24e-07
(0.00)
-0.0177***
(0.00)
-0.00420
(0.01)
0.0157***
(0.01)
-0.00517
(0.01)
0.132
(0.45)
-0.809***
(0.24)
127
37
(5)
gini<50
-0.0356
(0.21)
8.97e-05***
(0.00)
1.24e-06
(0.00)
-0.0207***
(0.00)
(6)
gini<50
0.0341
(0.23)
0.000116***
(0.00)
-0.0166***
(0.00)
0.0148**
(0.01)
-0.00467
(0.01)
-0.00100
(0.01)
127
37
137
38
Estimation 4: Direction of Causality
VARIABLES
prob_stabns_0
property_
rights_1
0.801*
(0.75)
property_
rights_1
0.946**
(0.45)
property_
rights_1
0.877*
(0.46)
property_
rights_1
1.075*
(0.95)
property_rights_0
fuel_export_0
-0.0267***
(0.00)
leg_french
-0.934**
(0.33)
secondary_schooling_0
-0.00399
(0.02)
population_0
-8.37e-07
(0.00)
GDP_per_capita_0
0.000145***
(0.00)
leg_socialist
-0.0248***
(0.00)
-0.851***
(0.24)
-4.99e-07
(0.00)
0.000148***
(0.00)
45
0.737
48
0.733
prob_
stabns_1
-0.0211
(0.02)
-0.00218**
(0.00)
0.0593
(0.04)
48
0.278
-0.0246***
(0.00)
-0.835***
(0.23)
-1.528***
(0.28)
0.000149***
(2.30e-05)
-4.26e-07
(0.00)
0.000119**
(0.00)
-0.0235
(0.02)
-0.00203**
(0.00)
0.0731*
(0.03)
0.00113
(0.00)
3.46e-07**
(0.00)
-4.39e-06**
(0.00)
48
0.732
-0.00606
(0.01)
42
0.686
45
0.290
eth_frac_0
Observations
R-squared
prob_
stabns_1
2.92e-07**
(0.00)
-3.11e-06
(0.00)
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)