Ukrainian-style oligarchic economies: how concentrated power undermines value added in production chains

TL;DR

This paper uses computational modeling to analyze how oligarchic control in Ukraine's economy hampers efficiency and growth, and identifies optimal de-oligarchization strategies based on oligarchs' positions in production chains.

Contribution

It introduces an agent-based model to simulate oligarch-controlled economies and evaluates de-oligarchization policies' effects on GDP growth.

Findings

Optimal de-oligarchization depends on oligarchs' position in the production chain.

Removing oligarchs' access to raw materials or influence on transactions can boost GDP.

Systemic inefficiencies are reinforced by political patronage and monopolization strategies.

Abstract

Oligarchic control exerts significant distortions on economic efficiency. Ukraine exemplifies this phenomenon, where oligarchs dominate key sectors and achieve economies of scale through vertical integration of coal mines, steel mills, and power plants while controlling critical infrastructure (e.g. access to transportation networks) to stifle competition. Their Soviet-era production chain monopolization strategies, coupled with political patronage networks (including both local and national governments), reinforce systemic inefficiencies and barriers to market entry. Although existing studies highlight the developmental benefits of de-oligarchization, this work advances the literature through computational modeling. We develop an agent-based model of a partially oligarch-controlled economy, where firms with heterogeneous production functions interact within a value-added network. Through numerical simulations, we quantify how different de-oligarchization policies affect aggregate GDP growth. The results indicate that the optimal de-oligarchization strategies are determined by the position of the oligarch in the production chain. Depending on the oligarch's position, dismantling oligarchic structures should either focus on removing oligarchs' access to raw materials or on breaking oligarchs' influence on other transactions in the production chain.