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

CEPR Discussion Paper Series No. 1494

Posted: 7 May 1997

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Thierry Verdier

Paris School of Economics (PSE); Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 1996

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.

JEL Classification: D22, H40

Suggested Citation

Acemoglu, Daron and Verdier, Thierry, Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach (October 1996). CEPR Discussion Paper Series No. 1494, Available at SSRN: https://ssrn.com/abstract=3940

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Thierry Verdier

Paris School of Economics (PSE) ( email )

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Centre for Economic Policy Research (CEPR)

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