Developing Property Rights in Developing Countries: a Firm-level Perspective

Abstract: How do property rights become secure? How does rule of law take hold in an economy? These issues have been primarily addressed through historical research or formal modeling. I use an original large-N survey of 516 firms in Russia and Ukraine to re-examine these fundamental issues of political economy. The survey design improves our measures of ownership security by estimating concrete threats to property rights and correcting for possible question misinterpretations by the respondents. At the theoretical level, the existing literature proceeds from the assumption of a rational sovereign. Yet most states in the developing world lack long time horizons and institutional capacity. In this context, I argue that firms can enforce their property rights through alliances with stakeholders such as foreign actors, community residents, labor, and other firms. These stakeholders can impose costs on the potential aggressors through diverse mechanisms. Through such political strategies, firms can defend their property rights from the state or private predators. Case studies supplement the survey data to demonstrate the potential of stakeholder alliances to resolve conflicts over ownership.