Law, Endowments and Property Rights

Law, Endowments and Property Rights - Journal of Economic...

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Law, Endowments and Property Rights Ross Levine P rivate property rights are crucial for personal welfare and economic devel- opment. Adam Smith (1776 [2000]) stressed that private contracting is a critical prerequisite for the voluntary, mutually beneFcial exchanges that foster specialization, innovation and economic growth. Hayek (1960, p. 140) ar- gued that protecting private property rights is vital for preventing coercion, secur- ing liberty and enhancing personal welfare. More recently, a growing body of empirical work demonstrates a strong positive association between the degree to which countries protect private property and economic development (Knack and Keefer, 1995; Hall and Jones, 1999). 1 The security of property rights, however, is not a natural occurrence; rather, it is an outcome of policy choices and social institutions. Any government strong enough to deFne and enforce property rights is also strong enough to abrogate those rights (North and Weingast, 1989). Thus, protection of property rights requires Fnding a balance between 1) an active government that enforces property rights, facilitates private contracting, and applies the law fairly to all; and 2) a government sufFciently constrained that it cannot engage in coercion and expropriation. Besides the explicit codes and formal enforcement organizations 1 ±or views that critique the beneFcial effects of private property, see Muller (2002). ±or example, Hegel feared that private property and the market could create an unhealthy desire for accumulation and foster want-creating Frms in an unsatisfying cycle of consumption and product creation. Karl Marx saw private property and the market as forces for manipulating behavior and exploiting people, at the expense of true personal liberty. y Ross Levine is Harrison S. Kravis University Professor, Department of Economics, Brown University, Providence, Rhode Island. He is also a Research Associate, National Bureau of Economic Research, Cambridge, Massachusetts. Journal of Economic Perspectives—Volume 19, Number 3—Summer 2005—Pages 61–88
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associated with defning, deFending and interpreting private property rights and contracts, property rights are also shaped by the “moral and ethical” norms gov- erning human interactions. 2 Thus, in this paper, the term “property rights” reFers to the degree to which a broad set oF policies, legal and political systems, and inFormal norms defne and protect private property, apply the law equally to all and limit government interFerence in private contracting. This paper describes two views oF what leads a society to greater or lesser protection oF property rights. The law view stresses that diFFerences in legal tradi- tions Formed centuries ago in Europe and spread via conquest, colonization and imitation around the world continue to account For cross-country diFFerences in property rights. The endowment view argues that diFFerences in natural resources, climate, the indigenous population and the disease environment aFFected the
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Law, Endowments and Property Rights - Journal of Economic...

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