Why do elites extend property rights: unlocking investment and the switch to public goods

TL;DR

This paper explains why economic elites voluntarily extend property rights by resolving commitment problems related to expropriation, and how identity fragmentation influences this process, ultimately promoting public goods provision.

Contribution

It introduces a novel rationale for property rights extension driven by elite incentives without ceding control, incorporating identity considerations into the model.

Findings

Extending property rights can incentivize elites to invest more by reducing expropriation risks.

Identity fragmentation weakens elites' incentives to extend property rights.

Property rights extension promotes public goods provision by aligning elite incentives.

Abstract

This paper presents a new rationale for a self-interested economic elite voluntarily extending property rights. When agents make endogenous investment decisions, there is a commitment problem. Ex-post, the elite face strong incentives to expropriate investments from the non-elite (who don't have property rights), which dissuades investment. Extending property rights to new groups can resolve this problem, even for those not given property rights, by making public good provision more attractive to the elite. Unlike other models of franchise extensions, extending property rights in this paper does not involve the elite ceding control to others. Rather, it changes the incentives they face. Additionally, adding identity groups to the model shows that an elite faces weaker incentives to resolve the commitment problem when it is part of a minority identity -- identity fragmentation makes it harder for a society to extend property rights.