Asset Complementarity, Resource Shocks, and the Political Economy of Property Rights
Abstract: This paper discusses how the economic structure and asset ownership shape political and institutional outcomes. Using a simple structural model of the productive sector, I provide a theoretical framework in which a commodity price shock, substitutability between productive assets, and inequalities increase the stakes of political competition, and therefore the intensity of the conflict over political power. These results provide a theoretical explanation for the frequent conflicts associated with abundant mineral resources. They are valid in a democratic setting, where this competition is electoral, but also in any other setting, where competition may be of a more violent nature. I then extend this analysis to show that a commodity price shock and substitutability between productive assets negatively influence the willingness of elite groups to invest in property rights institutions, thus providing an economic explanation for why some countries have endogenously developed a context more favorable to business than others.
