Creditor protection and the dynamics of the distribution in oligarchic societies

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper analyzes the impact of weak contracting institutions on economic development and the wealth distribution in a Ramsey-type growth model. We show that, at low levels of accumulation, weak contracting institutions strongly favor the economic elite: By preventing market entry, such institutions provide the “oligarchs” with cheap access to credit—which is highly beneficial as long as capital is scarce. At the same time, a broad cross-section of society faces only low returns so that capital accumulation is slowed down and the capital stock gets concentrated in the hands of the elite. At higher levels of development, however, weak contracting institutions are harmful to all segments of society and institutional reform becomes unanimously supported. So the model helps to explain the pervasiveness of weak contracting institutions in less-advanced economies.
Original languageEnglish
Pages (from-to)313-344
JournalJournal of Economic Growth
Volume14
Issue number4
DOIs
Publication statusPublished - 2009

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Contracting
Elites
Economic development
Wealth distribution
Institutional reform
Economics
Market entry
Cross section
Growth model
Capital stock
Oligarchs
Capital accumulation

Cite this

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title = "Creditor protection and the dynamics of the distribution in oligarchic societies",
abstract = "This paper analyzes the impact of weak contracting institutions on economic development and the wealth distribution in a Ramsey-type growth model. We show that, at low levels of accumulation, weak contracting institutions strongly favor the economic elite: By preventing market entry, such institutions provide the “oligarchs” with cheap access to credit—which is highly beneficial as long as capital is scarce. At the same time, a broad cross-section of society faces only low returns so that capital accumulation is slowed down and the capital stock gets concentrated in the hands of the elite. At higher levels of development, however, weak contracting institutions are harmful to all segments of society and institutional reform becomes unanimously supported. So the model helps to explain the pervasiveness of weak contracting institutions in less-advanced economies.",
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Creditor protection and the dynamics of the distribution in oligarchic societies. / Oechslin, M.

In: Journal of Economic Growth, Vol. 14, No. 4, 2009, p. 313-344.

Research output: Contribution to journalArticleScientificpeer-review

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