Establishing Property Rights

Abstract

Establishing secure property rights in transition economies amounts to solving two problems: inefficient structures of control rights over assets and poor contract enforcement. Politicians and bureaucrats still wield excessive control over assets, which results in inefficient underinvestment by entrepreneurs. Corruption is one way of getting around political control, but the drawbacks are considerable, particularly the limited enforceability of corruption contracts. More workable strategies for establishing property rights in transition economies are giving equity to the bureaucrats (and other parties that have control), reforming the civil service, and removing bureaucratic control rights through privatization. Russia's experience shows how privatization, combined with equity incentives for enterprise insiders, transfers control rights from the bureaucrats and stimulates political and economic pressures to protect private property rights.