The Rise of Inclusive Political Institutions and Stronger Property Rights: Time Inconsistency Vs. Opacity.
Abstract: Despite the relevance of inclusive political institutions and strong property rights, we still lack an unified framework that identifies their origins and interaction. We study a model in which the elite can elicit the citizens' cooperation in investment by either granting a more inclusive political process, which allows them to select the tax rate and produce their preferred public good, and by punishing suspected shirking through the restriction of property rights. When the investment return is small, cooperation can only be attained under the more inclusive political process. When instead investment is sufficiently profitable, the elite does not need to empower the citizens and can substitute maximum taxation and \textit{de facto} property rights with partial redistribution and, possibly, no private rights. Yet, embracing the stick is optimal only when production is sufficiently transparent, and, thus, punishment effectively disciplines a shirking citizen. These predictions are consistent with the evolution of the geographic conditions shifting the expected return and opacity of the farming process, the inclusiveness of political institutions, the strength of property rights and the public good provision in a panel of the 44 major Mesopotamian polities spanning each half-century between 3050 and 1750 BCE. Crucially, our estimates are very similar when we control for proxies for trade potential, severity of external and internal conflicts and urbanization.
