Insecure Property Rights and the Missing Middle

34 Pages Posted: 31 Oct 2018

See all articles by Aram Grigoryan

Aram Grigoryan

University of Illinois at Urbana-Champaign

Mattias Polborn

Vanderbilt University - College of Arts and Science - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2018

Abstract

We analyze a theoretical model in which entrepreneurs’ property rights are threatened by “raiders” who can challenge them to a contest for control of their firms. Entrepreneurs have heterogeneous productivity, and decide how much capital to invest before raiders decide whom to attack. In equilibrium, low productivity entrepreneurs are unaffected by the existence of raiders, while mid- and high-productivity entrepreneurs suffer. However, while raiders essentially act like a tax for the highest productivity entrepreneurs, the investment behavior of mid-productivity entrepreneurs who try to avoid an attack is more drastically affected. Our model provides a novel theoretical explanation for the “missing middle” observed in many countries with insecure property rights.

Keywords: property rights, rent-seeking, corruption, missing middle

Suggested Citation

Grigoryan, Aram and Polborn, Mattias K., Insecure Property Rights and the Missing Middle (2018). CESifo Working Paper No. 7203, Available at SSRN: https://ssrn.com/abstract=3275376 or http://dx.doi.org/10.2139/ssrn.3275376

Aram Grigoryan (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

Mattias K. Polborn

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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