DP11285 Political Economy of Redistribution

Author(s): Daniel Diermeier, Georgy Egorov, Konstantin Sonin
Publication Date: May 2016
Keyword(s): institutions, legislative bargaining, political economy, Property rights
JEL(s): D72, D74, P48
Programme Areas: Public Economics, Development Economics

It is often argued that additional constraints on redistribution such as granting veto power to more players in the society makes property better protected from expropriation. We use a legislative bargaining-type model to demonstrate that this intuition may be Â?flawed. Increasing the number of veto players or raising the supermajority requirement for redistribution may reduce protection on the equilibrium path. The reason is the existence of two distinct mechanisms of property rights protection. One is formal constraints that allow individuals or groups to block any redistribution that is not in their favor. The other occurs in equilibrium where players without such powers protect each other from redistribution. Players without formal veto power anticipate that the expropriation of other similar players will ultimately hurt them and thus combine their inflÂ?uence to prevent redistributions. In a stable allocation, the society exhibits a Â?"class" Â?structure with class members having equal wealth, and strategically protecting each other from redistribution.