Skip to main content
Unpublished Paper
Insecure property rights and the missing middle
(2017)
  • Aram Grigoryan, University of Illinois at Urbana-Champaign
  • Mattias K Polborn, Vanderbilt University
Abstract
We analyze a theoretical model in which entrepreneurs' property rights  to their firms are threatened by ``raiders'' who can challenge them to a contest for control of their firms.
Entrepreneurs are heterogeneous with respect to their productivity, and decide how much capital to invest before raiders decide whom to attack.
In equilibrium, low productivity entrepreneurs are unaffected by the existence of raiders, while mid- and high-productivity entrepreneurs suffer. However, while raiders essentially act like a tax for the highest productivity entrepreneurs, the investment behavior of mid-productivity entrepreneurs who try to avoid an attack  is more drastically affected.
Our model provides a novel theoretical explanation for the ``missing middle'' observed in many countries with insecure property rights.

Keywords
  • Property rights,
  • rent-seeking,
  • corruption,
  • missing middle
Publication Date
November 5, 2017
Citation Information
Aram Grigoryan and Mattias K. Polborn, "Insecure property rights and the missing middle", working paper (Vanderbilt University).