Credible Commitment and Property Rights: Evidence from Russia

Abstract

Few dispute that secure property rights are critical to economic development. But if secure property rights are so beneficial, then why are they so rare? More precisely, what factors promote secure property rights? Do rightholders view private or state agents as a greater threat to property? Do they value bureaucratic commitment or discretion? I use evidence from two original surveys of company managers in Russia to assess the institutional, social, and political determinants of secure property rights. Most managers said that state arbitration courts did not work badly in disputes with other businesses, but few expected these courts to protect their rights in disputes with state officials. More importantly, managers who expressed confidence that state arbitration courts could constrain state officials invested at higher rates, even controlling for the perceived effectiveness of state institutions. Ironically, increasing constraints on state agents can increase the security of property and bolster state capacity. These results generate insights into debates on the role of state in the economy, the origins of secure property rights, the nature of state capacity, the importance of informal institutions, and the process of legal reform.