Insecure Property Rights and Government Ownership of Firms

We develop a theory of the ownership of firms in an environment without secure property rights against state encroachment. "Private ownership" leads to excessive revenue hiding and "state ownership" (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way. Because "local government ownership" integrates local government activities and business activities, local government may better serve the interests of the national government, and thus local government ownership may credibly limit state predation, increase local public goods provision, and reduce costly revenue hiding. We use our theory to interpret the relative success of local government-owned firms during China’s transition to a market economy.

Spoliation vs. ‘The right not to lie’: An economic theory of the 2012 political crisis leading to the referendum to impeach the President of Romania

In July 2012, Romania witnessed signs hinting at a possible erosion of political freedom. The paper shows that these signs point to a significant shortfall in economic freedom, deeply rooted in insecure property rights and high corruption. Such a shortage accounts for both the absence of the rule of law and many people’s reliance on the government for a job. Voters reliant on redistribution (mainly employees in the public sector, pensioners and welfare recipients) who actually cast their votes have outnumbered the other voters and have come to think of themselves as the owners not only of the redistribution rights set forth by law, but also of the values of those rights. Thus, excessive redistribution lays the groundwork for the “tyranny of the majority” and explains why the mechanisms to correct excesses cannot be used or are used too late, as they seem illegitimate. The paper presents the particularities of voters reliant on redistribution and the mechanism whereby they may come to agree, even if not wholeheartedly, to the reduction in their political freedoms if this means averting a cut in redistribution incomes. The paper concludes that it is only a matter of time before political freedom deteriorates in the absence of higher economic freedom via enhanced property rights, lower corruption and less reliance on redistribution.