Institutions, Property Rights, and Growth

This paper presents a growth model in which property rights are insecure and costly to enforce. Losses of property provide the impetus to establish institutions which seek to enforce property rights. Institutions are shown to implement policies that enforce property rights. The model establishes that economies in which the institutional structure does not adequately protect property rights grow slowly, or not at all, while countries with better property rights protection grow in accordance with the standard neoclassical model. Because income inequality is a primary incentive to violate another's property rights, the model also provides a positive theory of income redistribution. Empirical tests of the model's predictions demonstrates that government expenditures that enforce property rights raise per capita income growth.