Economic Growth and Decline with Endogenous Property Rights

This article introduces endogenous institutional change into a neoclassical growth model. For some parameter values, all Markov perfect equilibria involve a shift from common property to private property followed by a shift back to common property. Even in the presence of a linear production technology, this sequence of switches generates growth rates that are increasing at low levels of capital and decreasing at high levels of capital. This result rationalizes the hump-shaped growth path followed by some countries through history, as well as the conditional convergence observed in postwar data. For other parameter values, there are also equilibria in which common property prevails forever. This result rationalizes the low-growth traps in which many poor countries find themselves.