The Origins of Political Institutions and Property Rights

Abstract

We study the possible cooperation between nonelites exerting an unobservable effort and elites unable to commit to direct transfers and, thus, always assure the nonelites' participation. The elites can, however, incentivize investment by granting to the nonelites strong property rights to the input and a more inclusive political process, which entrusts them with control over fiscal policies. Adverse production conditions force the elites to enact strong nonelites' political and property rights to convince them that a sufficient part of the returns on joint investments will be shared via public good provision. These reforms assure cooperation (...)