We are grateful to an anonymous referee for many constructive criticisms and suggestions. We also thank K. Angelopoulos and V. Vassilatos for discussions. Any errors are ours.
Optimal Protection of Property Rights in a General Equilibrium Model of Growth*
Article first published online: 31 MAY 2007
The Scandinavian Journal of Economics
Volume 109, Issue 1, pages 153–175, March 2007
How to Cite
Economides, G., Park, H. and Philippopoulos, A. (2007), Optimal Protection of Property Rights in a General Equilibrium Model of Growth. The Scandinavian Journal of Economics, 109: 153–175. doi: 10.1111/j.1467-9442.2007.00486.x
- Issue published online: 31 MAY 2007
- Article first published online: 31 MAY 2007
- First version submitted June 2004;final version received May 2006.
- Property rights;
- second-best policy
We incorporate weak property rights into an otherwise standard general equilibrium model of growth and second-best optimal policy. In this setup, the state plays two of its key roles: it protects property rights and provides public services. The government chooses policy (the income tax rate, as well as the allocation of collected tax revenues between law enforcement and public services) to maximize the growth rate of the economy. The focus of our analysis is on how weak property rights generate multiple decentralized competitive equilibria, the different properties of these equilibria, and the implications of second-best optimal policies.