Working Paper: CEPR ID: DP11285
Authors: Daniel Diermeier; Georgy Egorov; Konstantin Sonin
Abstract: It is often argued that additional constraints on redistribution such as granting veto power to more players in the society makes property better protected from expropriation. We use a legislative bargaining-type model to demonstrate that this intuition may be flawed. Increasing the number of veto players or raising the supermajority requirement for redistribution may reduce protection on the equilibrium path. The reason is the existence of two distinct mechanisms of property rights protection. One is formal constraints that allow individuals or groups to block any redistribution that is not in their favor. The other occurs in equilibrium where players without such powers protect each other from redistribution. Players without formal veto power anticipate that the expropriation of other similar players will ultimately hurt them and thus combine their influence to prevent redistributions. In a stable allocation, the society exhibits a "class" structure with class members having equal wealth, and strategically protecting each other from redistribution.
Keywords: Political Economy; Legislative Bargaining; Property Rights; Institutions
JEL Codes: P48; D72; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing the number of veto players (D72) | decrease in property rights protection (P14) |
| players without formal veto power anticipate expropriation (H13) | form coalitions to protect each other (D74) |
| number of veto players (D72) | property rights protection (P14) |
| supermajority requirements (D72) | redistribution dynamics (D39) |
| adding veto players or raising supermajority requirements (D72) | instability in property rights (P14) |
| increasing veto players (D72) | increased risks of expropriation (H13) |