• DOI:10.1111/j.1468-0351.2007.00280.x
• Corpus ID: 154973586

The Role of Oligarchic Property Rightsa Macroeconomic Model of Russian Transition

@article{Myerson2007TheRO,
  title={The Role of Oligarchic Property Rightsa Macroeconomic Model of Russian Transition},
  author={Roger B. Myerson},
  journal={Institutional \& Transition Economics eJournal},
  year={2007}
}

• R. Myerson
• Published 1 January 2007
• Economics
• Institutional & Transition Economics eJournal

We present a model in which capital assets can only be owned by members of a relatively small politically connected elite ('the oligarchs'), each member of which faces a given risk of being expropriated, and we investigate the implications of such an imperfection of property rights for the transition to a market economy. At the start of the transition, the oligarchs are long on local capital assets but short on safe deposits abroad. This causes a depression phase characterized by acute liquidity constraints and large capital outflows at the same time. As the oligarchs acquire enough safe deposits, the economy enters a recovery phase, still accompanied by capital outflows. The model can parsimoniously explain both the steep decline suffered by the Russian economy in the first stage of its transition to a market economy and the subsequent turnaround. The decline could be avoided by allowing foreigners to own some domestic capital assets, but home-country oligarchs may not be able credibly to collectively commit to such a reform. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction and Development.