Property rights and economic development: taking stock, looking ahead

Although property rights are crucial to economic development, our understanding of their origins remains limited. A recent strand of research, however, has made a major advance by documenting that the ex post misallocation – driven by the mix of strongly protected property rights and large transaction costs – explains the distribution of property rights significantly better than does the disincentive effect of predation by the state and powerful elites. This conclusion leads to several key questions on the impact of the protection of property rights on the extent of private expropriation, the scope of firms, the size of markets and, ultimately, economic development. This chapter illustrates the challenges involved in answering these questions, and highlights potential policy implications.