Pol S 204 Lecture Property Rights the Rule of Law development How can we think of economic development the potential gains from trade incentivize ppl to specialize over trying to be self sufficient knowing better of trading motivated to save some of their income invest it to boost their productivity increase profits specialization incentive to invest in improvement Self interest is not sufficient however without repeated interaction with high transaction costs even mutually beneficial agreements fail 3rd party enforcement government reduces transaction coast of trade at long distances between strangers cid 127 Why do we care if some countries are rich others poor consistent economic growth lifts people out of poverty Ameliorates hunger disease economic development leads to other good things increased leisure pursuit of activity that gives us pleasure fulfillment cultivation of culture arts ethical pursuits economic development power influence that power influence achieves collective goods such as security prestige and ability ti shape international rules cid 127 What institutions foster prosperity secure property rights distributed among population consistent contract enforcement impartial judicial rule of law public goods that decrease the transaction costs between strangers distance informal institutions promote trust allow individuals to coordinate on joint activities that allow gains from right to earn income form that asset contract with others to license control of asset trade to be made Property Rights right to restrict acces to an asset use divide transform asset Enforcement public good impartial selective privileged group of asset holders cid 127 more property rights more development invest in property or corruption The Mechanism specification od Property Rights public vs private precise predictable prevent theft from Gov or citizens contracts reduction of transaction Costs uniformity currency contracts accounting why are secure property rights other good institutions associated cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 info about prices quality of goods cid 127 GAAP accounting principals financial statements track investments intangible assets effects affects value of property cid 127 more clearly defined the right to enjoy transform asset greeter its value affects incentives acquire assets in first place cid 127 make investment innovations that improve assets Effects of insecure property rights theft corruption become a politician Intelectual property rights ideas software USA paton property rights explosion in research Role of government no incentive to make these investments since firms not be able to recuperate value of investment Acedemics dont trust each other to share research government strong enough t enforce property rights contracts also strong enough to violate them assigning enforcing property rights enforcing contracts provide public goods that reduce transaction costs Parados of Gov cid 127 Weigngas expropriate income wealth generated by private exchanges abuse power of purse monopoly over printing press no concensus no enforcement of property rights Weigngas dont net on permanent property rights all about incentives to provide property rights public goods cid 127 Mancur Olson Theory of Stationary Banditry If poor countries are poor because they have bad institutions then why don t they just adopt good institutions 1 when they can claim a portion of the growth through taxing 2 ruler internalizes benefits of good institutions such as property rights and public goods 3 key prediction when rulers have a long time horizon they can expect to enjoy returns If you ar planing long term because you will be around long term Kim II Sung Kim JungII Kim Jung Un external factors Kim 1 would have realized that the regime would last so long he would have invested in good institutions cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 Dictator all Stars Zimbabwe Cuba Time horizons not enough Social conflict theory backwardness How it differs if ruler adopts institutions promotes greater wealth increased power of challengers challengers can not credibly promise incumbent he will continue to reap rents after chose inefficient economic institutions deliberately even though they know that these lead to economic to shelter them selves to keep their power they don t trust anyone once you give up power its gone there are no guarantees institutions don t evolve to reflect underlying needs of societies because society is composed of dictators do not make these choices by mistake institutions are conscious choice individuals with different interests no invisible hand democracy key to property rights development Incentives for government to be responsive look at slide look at slide cid 127 Go over maps make connections Final thoughts on Taxation costs are concentrated in the individual but benefit is diffused harder to connect the cost to the benefits private transactions quid pro quo I get X for Y Taxes often end with ppl paying for stuff ppl don t want or hate everybody loves spending consuming no one like s taxes revenues used to pay for public goods redistribute income encourages savings penalize consumption stimulates investment Tax policy distorts economic decision making Income taxation wealthier you are the more you pay a taxpayers must be literate and numerate tax assessors must by accountants good detectives progressive rates increase as income increases Exemptions deductions for poorer people mean that the Relies on voluntary compliance Citizens will tend not to pay if they believe others ar not paying or that gov does not follow through with providing public goods demand by citizens resistance from wealthy income cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127