Property Rights Security in a Self-Sustaining Equilibrium of Institutions

Abstract

This paper analyzes a dynamic equilibrium of institutions that affect property rights security, including coercion, informal means of rent-seeking, political regimes, and the legal system. The main results suggest that the evolving factor composition from land to capital, especially its decreasing vulnerability to expropriation, is the ultimately force pushing the wheel of endogenous institutional change, where the routine form of protection shifts from coercive means to politics and then to law. The internal coherence of these different formats of protection implies that general property security can't be high when key economic resources are vulnerable to expropriation, while the rule of law and a strong government coexist only when the common people are capable of defending themselves collectively against state predation. The main predictions of the model are consistent with broad historical evidence.