Documentos CEDE
ISSN 1657-7191 Edición electrónica.
The Political Economy of Rural Property
Rights and the Persistence of the Dual
Economy
Leopoldo Fergusson
09
JUNIO DE 2012
CEDE
1
Centro de Estudios
sobre Desarrollo Económico
Serie Documentos Cede, 2012-09
ISSN 1657-7191 Edición electrónica.
Junio de 2012
© 2012, Universidad de los Andes–Facultad de Economía–CEDE
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CEDE
Centro de Estudios
sobre Desarrollo Económico
The Political Economy of Rural Property Rights and the
the Dual
Economy
The PoliticalPersistence
Economy of Rural
Property
Rights and the
Persistence
of the Dual Economy
Leopoldo Fergusson∗
Leopoldo
Fergusson
June 20,
2012 ∗
June 20, 2012
Abstract
If property rights in land are so beneficial,Abstract
why are they not adopted more widely? I propose
a theory based on the idea that limited property rights over peasants’ plots may be supported
byproperty
elite landowners
(who are
depend
on peasants
achievemore
two widely?
goals. First,
like
If
rights in land
so beneficial,
why for
are labour)
they nottoadopted
I propose
other
distortions
as taxation,
limited
property
rights
peasants’
income
their
a
theory
based onsuch
the idea
that limited
property
rights
overreduce
peasants’
plots may
be from
supported
ownelite
plots,
generating(who
a cheap
labour
Second,
unlike
theygoals.
force peasants
to
by
landowners
depend
onforce.
peasants
for and
labour)
to taxation,
achieve two
First, like
remaindistortions
in the ruralsuch
sector
protect limited
their property,
if job
opportunities
the urban
other
as to
taxation,
propertyeven
rights
reduce
peasants’appear
incomeinfrom
their
sector.
Thegenerating
theory identifies
under
whichand
weak
property
rights
institutions
emerge,
own
plots,
a cheapconditions
labour force.
Second,
unlike
taxation,
they
force peasants
to
providing
a specific
mechanism
for the
endogenous
persistence
of inefficient rural
institutions
as
remain
in the
rural sector
to protect
their
property, even
if job opportunities
appear
in the urban
development
unfolds.
It also predicts
a non-monotonic
relationship
the quality emerge,
of rural
sector.
The theory
identifies
conditions
under which weak
propertybetween
rights institutions
property rights
and mechanism
land in the for
hands
peasants. persistence of inefficient rural institutions as
providing
a specific
the of
endogenous
development unfolds. It also predicts a non-monotonic relationship between the quality of rural
JEL classification:
O1;hands
O10; of
P16
property
rights andH2;
landN10;
in the
peasants.
Keywords: Political economy; institutions; economic development; taxation; property rights;
land;classification:
dualism
JEL
H2; N10; O1; O10; P16
Keywords: Political economy; institutions; economic development; taxation; property rights;
land; dualism
∗
Universidad de los Andes, Department of Economics, Calle 19A No. 1-37 Este Bloque W, Of W-812, Bogotá,
Colombia, Email: [email protected], Tel: +571 339 4949 Ext 2439, Fax: +571 332 4492. I thank Daron
Acemoglu,
Abhijit Banerjee, and James Robinson for advice and many useful discussions. I also thank Ximena
∗
Universidad de los Andes, Department of Economics, Calle 19A No. 1-37 Este Bloque W, Of W-812, Bogotá,
Cadena, Sarah Hamilton, Ana Marı́a Ibáñez, Samuel Pienknagura, and Juan Fernando Vargas for comments. Two
Colombia, Email: [email protected], Tel: +571 339 4949 Ext 2439, Fax: +571 332 4492. I thank Daron
anonymous referees, seminar participants at the MIT political economy breakfast, MIT development lunch, the 2010
Acemoglu, Abhijit Banerjee, and James Robinson for advice and many useful discussions. I also thank Ximena
Midwestern Political Science Association, and members of the Political Economy and the Economic History/Historical
Cadena, Sarah Hamilton, Ana Marı́a Ibáñez, Samuel Pienknagura, and Juan Fernando Vargas for comments. Two
Development (EHHD) groups at Harvard-MIT also provided useful suggestions. In particular, I thank Dave Donaldanonymous referees, seminar participants at the MIT political economy breakfast, MIT development lunch, the 2010
son, Esther Duflo, Rachel Glennerster, Gina M.S. Lambright, Carl Levan and Benjamin Olken. Financial support
Midwestern Political Science Association, and members of the Political Economy and the Economic History/Historical
from the Central Bank of Colombia is gratefully acknowledged.
Development (EHHD) groups at Harvard-MIT also provided useful suggestions. In particular, I thank Dave Donaldson, Esther Duflo, Rachel Glennerster, Gina M.S. Lambright, Carl Levan and Benjamin Olken. Financial support
from the Central Bank of Colombia is gratefully acknowledged.
1
La economı́a polı́tica de los derechos de propiedad
rurales y la persistencia de la economı́a dual
Leopoldo Fergusson∗
Resumen
Si los derechos de propiedad sobre la tierra son tan benéficos, ¿Por qué no
se establecen con mayor frecuencia? Este documento propone una teorı́a en
la que derechos de propiedad limitados para las parcelas de los campesinos
pueden ser defendidos por una elite terrateniente (que depende del trabajo de
los campesinos) con dos objetivos en mente. Primero, como otras distorsiones
como la tributación, los derechos de propiedad incompletos reducen el ingreso
de los campesinos en sus parcelas, generando una mano de obra barata. Segundo, y contrario a la tributación, obligan a los campesinos a quedarse en
el sector rural para cuidar su propiedad, inclusive si aparecen oportunidades
de trabajo en el sector urbano. La teorı́a identifica condiciones bajo las cuales
surgen instituciones débiles de derechos de propiedad, sugiriendo un mecanismo especı́fico para la persistencia endógena de instituciones rurales ineficientes
a medida que se da el desarrollo económico. También predice una relación no
monotona entre la calidad de los derechos de propiedad rurales y la cantidad
de tierra en manos de los campesinos.
Clasificación JEL: H2, N10, O1, O10, P16
Palabras clave: Economı́a polı́tica, instituciones, desarrollo económico, tributación, derechos de propiedad, tierra, economı́a dual
∗
Profesor Asistente, Economı́a, Universidad de los Andes, Calle 19A No 1-37 Este, Bloque W,
Bogotá, Colombia, Email: [email protected], Tel: +571 339 4949 Ext 2439, Fax: +571
332 4492.
2
1
1
1
A
1
The fact that the wage level in the capitalist sector depends upon earnings in the subsisThe
fact
thatisthe
wage levelofinimmense
the capitalist
sector
depends upon
the
tence
sector
sometimes
political
importance,
sinceearnings
its effectin
thatsubsiscapiThe
fact
thatisthe
wage levelofinimmense
the capitalist
sector
depends upon
earnings
inis
the
subsistence
sector
sometimes
political
importance,
since
its
effect
is
that
capitalists
have
direct
interest
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holding
downsector
theimportance,
productivity
of the
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workers
The
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wage
levelofin
the
capitalist
depends upon
earnings
inisthe
subsistence
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immense
political
since
its
effect
that
capitalists
have
aisdirect
interest
down theimportance,
productivity
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workers
(...)
In
actual
fact
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record
ofholding
every imperial
power
in Africa
inits
modern
iscapione
tence
sector
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immense
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since
effect times
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talists
have
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(...)
Inhave
actual
fact
the
recordinofholding
every imperial
power
in Africa
in
modern
times
isorone
of
impoverishing
the
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either
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taking
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people’s
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by
talists
a
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down
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(...)
In actual fact
the
record of economy,
every imperial
power
in Africa
in
modern
times
isorone
of
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either
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taking
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people’s
land,
by
demanding
forced
labour
in theofcapitalist
sector,
or
imposing
taxes
to drive
people
to
(...)
In actual
fact
the
record
every imperial
in
Africa
times
isorone
of
impoverishing
the
subsistence
economy,
eitherpower
by by
taking
away in
themodern
people’s
land,
by
demanding
forced
labour
in
the
capitalist
sector,
or
by
imposing
taxes
to
drive
people
to
work
for
capitalist
employers.
of
impoverishing
the
subsistence
economy,
either
by
taking
away
the
people’s
land,
or
by
demanding
forced labour
in the capitalist sector, or by imposing taxes to drive people to
work
for
capitalist
employers.
demanding
forced labour
in the capitalist sector, or by imposing taxes to drive people to
work for capitalist
employers.
Sir W. Arthur Lewis, 1954
work for capitalist employers.
Sir W. Arthur Lewis, 1954
Sir W. Arthur Lewis, 1954
Sir W. Arthur Lewis, 1954
Introduction
Introduction
Introduction
central
question in political
Introduction
economy concerns the persistence of inefficient institutions. This
A central question in political economy concerns the persistence of inefficient institutions. This
paper
addresses
thisinissue
in theeconomy
context of
rural property
rights. Property
rightsinstitutions.
over land areThis
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central
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political
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paper
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central
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political
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inefficient
because
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less-developed
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paper addresses
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in many
the context
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Property rights
over specification
land are key
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Property
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over specification
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and
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characterized
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frequently
involve
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and weak enforcement
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specifically,
rural areas
in developing
countries
throughout
history and of
even
today frequently
involve
the coexistence
of more
than one regime
of
and
weak
enforcement
property
rights.
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specifically,
rural
areas
in
developing
countries
property
rights
andand
production.
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more “modern”
of “capitalist”
landowners,
large
throughout
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even today
involvegroup
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than onewith
regime
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andand
production.
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throughout
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even
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involvegroup
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of more
than
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farms
around
institutions
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a
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or
“subsistence”
property rights and production. A more “modern” group of “capitalist” landowners, with large
farms around
of private
property,
coexistsgroup
with of
a more
“traditional”
or “subsistence”
property
rightsinstitutions
andwho
production.
more
“modern”
“capitalist”
landowners,
with large
group around
of peasants,
farm
smallAplots
with
limited
rights.
farms
institutions
of private
property,
coexistsproperty
with a more
“traditional” or “subsistence”
group around
of peasants,
who farm
small plots
with limited
property
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farms
institutions
of private
property,
coexists
with a more
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“subsistence”
At of
thepeasants,
same
time,
broad
consensus
that individual,
well-specified
and or
secure
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group
whothere
farmissmall
plots
with limited
property rights.
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thepeasants,
same time,
there
issmall
broad
consensus
that individual,
well-specified and secure property
group
who
farm
plots
with
limited
property
rights.
rights
productive
assets,is and
land
in particular,
improve economic
outcomes.
Of course,
this
At over
the same
time, there
broad
consensus
that individual,
well-specified
and secure
property
rights
over
productive
assets,is and
land
in particular,
improve economic
outcomes.
Of course,
this
At
the
same
time,
there
broad
consensus
that
individual,
well-specified
and
secure
property
impliesover
thatproductive
the “dual”assets,
structure
agricultural
sector
may cause
low productivity,
and
rights
and within
land in the
particular,
improve
economic
outcomes.
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impliesover
thatproductive
the “dual”assets,
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the
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rights
and
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in
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improve
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raises some
Why aren’t
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property rights
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widely?
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implies
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implies
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socially
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raises
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private
property
rights adopted more widely? Why did this
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raises
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socially
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farms,
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and
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to
anthe
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that
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on
the
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can
work
on
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competes
with
landowners
fortolabour
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peasants’
outmigration.
is natural
think
of
for the rural
elite,
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an alternative
sector.
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sectorItmay
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that
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with
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fortolabour
and require
peasants’
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to
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an
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that
it as the “urban
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associate
increase
in the outmigration.
urban wage with
competes
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fortolabour
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require
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It is“modernization.”
natural to think of
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associate
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require
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natural to
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theand
elite
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“modernization.”
choosing
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the following
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Bad “modernization.”
property rights may
it asWhen
the “urban
sector,”
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to associate
anfaces
increase
in the urban
wage
When choosing property rights, the elite faces the following trade off. Bad property rights may
When choosing property rights, the elite faces1 the following trade off. Bad property rights may
1
1
1
3
Peasants, on the other hand, are the only source of labour. Peasants can work on their own farms,
for the rural elite, or migrate to an alternative sector. The alternative sector may be any other that
competes with landowners for labour and require peasants’ outmigration. It is natural to think of
it as the “urban sector,” and to associate an increase in the urban wage with “modernization.”
When choosing property rights, the elite faces the following trade off. Bad property rights may
be beneficial for the elite since they increase the cost of migration and reduce the returns to labor
be beneficial for the elite since they increase the cost of migration and reduce the returns to labor
be
beneficial
for the
eliteThese
since they
increase
the 1increase
cost of migration
and reduce
returns
to labor
in
the
peasants’
farms.
factors,
in turn,
labour supply
to thethe
elite’s
farms.
Bad
be
beneficial
for the
eliteThese
since they
increase
the increase
cost of migration
and reduce
returns
to labor
in
the
peasants’
farms.
factors,
in turn,
labour supply
to thethe
elite’s
farms.
Bad
be
beneficial
for
the
elite
since
they
increase
the
cost
of
migration
and
reduce
the
returns
to
labor
in
the
peasants’
farms.
These
factors,
in
turn,
increase
labour
supply
to
the
elite’s
farms.
Bad
property
rights,
however,
also
reduce
agricultural
productivity,
and
hence
the
tax
base
used
to
in
the peasants’
farms. These
factors,agricultural
in turn, increase
labour supply
to the
elite’s
farms.
Bad
property
rights,
however,
also
reduce
productivity,
and
hence
the
tax
base
used
to
in
the
peasants’
farms.
These
factors,
in
turn,
increase
labour
supply
to
the
elite’s
farms.
Bad
property
rights,
however,
also
reduce
agricultural
productivity,
and
hence
the
tax
base
used
to
finance
redistribution
to
the
elite.
propertyredistribution
rights, however,
also
reduce agricultural productivity, and hence the tax base used to
finance
to
the
elite.
property
rights, however,
also
reduce agricultural
productivity,
and hence
the optimally
tax base used
to
finance
to the
elite.
The redistribution
model’s
key predictions
the conditions
under which
the elite
set bad
finance
redistribution
to the elite.concern
The
model’s
key
predictions
concern
the
conditions
under
which
the
elite
optimally
set
bad
finance
tothe
theelite
elite.extracts
The redistribution
model’s
concern revenue
the conditions
whichcheap
the elite
optimally
bad
property
rights. key
Sincepredictions
both byunder
producing
labour
and byset
raising
The model’s
key
predictions
concern revenue
the conditions
under
whichcheap
the elite
optimally
set
bad
property
rights.
Since
the
elite
extracts
both
by
producing
labour
and
by
raising
Thethe
model’s
key
concern
the conditions
whichincheap
the
elite
optimally
set
bad
property
rights.
Sincepredictions
the
elite of
extracts
revenue
both
byunder
producing
labour
and
by
raising
taxes,
importance
of
each
these
sources
of
rents
is
crucial
determining
it’s
choice
of
property
rights.
Since the
elite of
extracts
revenue of
both
by is
producing
cheap
labour and
by
raising
taxes,
the
importance
of
each
these
sources
rents
crucial
in
determining
it’s
choice
of
property
rights.
Since
the
elite
extracts
revenue
both
by
producing
cheap
labour
and
by
raising
taxes,
therights
importance
of each
these
sources influencing
of rents is this
crucial
in determining
it’s choice
of
property
institutions.
Theof
key
parameters
decision
are urban wages,
the size
taxes,
the
importance
of
each
of
these
sources
of
rents
is
crucial
in
determining
it’s
choice
of
property
rights
institutions.
Theofkey
parameters
influencing
this
decision
are urban wages,
the size
taxes,
therights
importance
of each
these
sources(it’s
of rents
crucial
in determining
it’s choice
of
property
institutions.
The key
parameters
influencing
this
decision
are urban wages,
the size
of peasants’
plots,
and the
elite’s
fiscal
capacity
abilityis to
raise
taxes).
property
rights
institutions.
The
key
parameters
influencing
this
decision
are
urban
wages,
the size
of
peasants’
plots,
and
the
elite’s
fiscal
capacity
(it’s
ability
to
raise
taxes).
property
rights
institutions.
The key
parameters
influencing
thisraise
decision
are urbanrights
wages,
the size
of peasants’
plots,
the predicts
elite’s
fiscal
capacity
(it’s
abilityare
to
taxes).
Specifically,
theand
model
that
when urban
property
prevail
as
of peasants’
plots,
and
the predicts
elite’s fiscal
capacity
(it’s wages
abilityare
to low,
raisegood
taxes).
Specifically,
the
model
that
when
urban
wages
low,
good
property
rights
prevail
as
of
peasants’
plots,
and
the
elite’s
fiscal
capacity
(it’s
ability
to
raise
taxes).
Specifically,
the model
predicts tax
thatpeasants.
when urban
wages are
low,
good
property
rights to
prevail
as
longSpecifically,
as landowners
can
effectively
Intuitively,
in
this
case
the
elite
wants
impose
the model
predicts tax
thatpeasants.
when urban
wages are
property
rights to
prevail
as
longSpecifically,
as landowners
can effectively
Intuitively,
in low,
this good
case the
elite wants
impose
the
model
predicts
that
when
urban
wages
are
low,
good
property
rights
prevail
as
long
as
landowners
can
effectively
tax peasants.
Intuitively,
in this to
case
the
elite wantsfrom
to impose
high as
taxes
on income
from
peasants’
both for
tax revenue
getthe
more
them.
long
landowners
can
effectively
taxplots
peasants.
Intuitively,
in and
this to
case
elitelabour
wantsfrom
to impose
high
taxes
on
income
from
peasants’
plots
both
for
tax
revenue
and
get
more
labour
them.
long
as
landowners
can
effectively
tax
peasants.
Intuitively,
in
this
case
the
elite
wants
to
impose
high
taxes
on
income
from
peasants’
plots
both
for
tax
revenue
and
to
get
more
labour
from
them.
A
relatively
high
tax
rate,
in
turn,
compels
the
elite
to
prioritize
extracting
resources
via
taxation.
high
taxes onhigh
income
from in
peasants’
plots both
for tax
revenue and
to get more
labourvia
from
them.
A
relatively
tax
rate,
turn,
compels
the
elite
to
prioritize
extracting
resources
taxation.
high
taxes
income
from
peasants’
plots
for
tax
revenue
and
toinget
more
labour
from
them.
A
relatively
high
tax rate,
in
turn,
compels
the elite
to prioritize
extracting
resources
via
taxation.
Thus,
whenonhigh
selecting
property
rights,
the both
elite
is mostly
interested
increasing
productivity
to
A
relatively
tax rate,
in turn,
compels
the elite
to prioritize
extracting
resources
via taxation.
Thus,
when
selecting
property
rights,
the
elite
is
mostly
interested
in
increasing
productivity
to
A
relatively
high
tax
rate,
in
turn,
compels
the
elite
to
prioritize
extracting
resources
via
taxation.
Thus,
when
selecting
property
rights,
the
elite
is
mostly
interested
in
increasing
productivity
to
increase
tax selecting
revenues, property
rather than
in reducing
returns
to labor
in theinpeasants’
farms
to increase
Thus,
when
rights,
the
elite
is
mostly
interested
increasing
productivity
to
increase
tax
revenues,
rather
than
in
reducing
returns
to
labor
in
the
peasants’
farms
to
increase
Thus,
when
property
rights,
thegood
elitereturns
is mostly
interested
increasing
productivity
to
increase
tax selecting
revenues,
rather
than
in
reducing
to labor
in
theinpeasants’
farms
to
increase
labor supply.
This entices
thethan
elite
to reducing
set
property
Hence,
with
low farms
urban
wages
and
increase
tax revenues,
rather
in
returns
torights.
labor in
the peasants’
to
increase
labor
supply.
This
entices
the
elite
to
set
good
property
rights.
Hence,
with
low
urban
wages
and
increase
taxthreat
revenues,
rather
labor
in
the
increase
labor
supply.
This entices
thethan
elite in
to reducing
set good returns
property
rights.
Hence,
with
low farms
urban
wages
and
no
effective
outmigration
elitetoonly
selects
badpeasants’
property
rightsto
if its
fiscal
labor
supply.
This of
entices
the eliteby
topeasants,
set good the
property
rights.
Hence,
with
low urban
wages
and
no
effective
threat
of
outmigration
by
peasants,
the
elite
only
selects
bad
property
rights
if
its
fiscal
labor
supply.
This
entices
the
elite
to
set
good
property
rights.
Hence,
with
low
urban
wages
and
no
effective
threat
of outmigration by peasants, the elite only selects bad property rights if its fiscal
capacity
is very
limited.
no
effective
threat
of outmigration by peasants, the elite only selects bad property rights if its fiscal
capacity
is very
limited.
no
effective
threat
of
outmigration
the elite
only selects bad
rights
if its fiscal
capacity
is very limited.
The implications
of this theoryby
atpeasants,
higher levels
of modernization
areproperty
markedly
different.
The
capacity
is very limited.
The
implications
of
this
theory
at
higher
levels
of
modernization
are
markedly
different.
The
capacity
is
very
limited.
Theisimplications
ofeffective
this theory
at of
higher
levels increasing
of modernization
are
markedly
different.
The
reason
that,
with
an
threat
migration,
taxes
on
peasants’
income
no
longer
Theisimplications
ofeffective
this theory
at of
higher
levels increasing
of modernization
are
markedly
different.
The
reason
that, with anof
threat
migration,
taxes onare
peasants’
income
no longer
The
implications
this
theory
at
higher
levels
of
modernization
markedly
different.
The
reason
isthem
that, to
with
an for
effective
threat ofOn
migration,
increasing
taxes the
on peasants’
income
no
longer
induces
work
landowners.
the
contrary,
it
reduces
attractiveness
of
rural
arreason isthem
that, to
with
an for
effective
threat ofOn
migration,
increasing
taxes the
on peasants’
income
no
longer
induces
work
landowners.
the contrary,
it reduces
attractiveness
of no
rural
arreason
is
that,
with
an
effective
threat
of
migration,
increasing
taxes
on
peasants’
income
longer
induces
them
to
work
for
landowners.
On
the
contrary,
it
reduces
the
attractiveness
of
rural
areas
and
the
ensuing
migration
decreases
labour
input
for
landowners.
Thus,
when
hoping
to
avoid
induces
them
to work
for landowners.
On
the contrary,
it reduces theThus,
attractiveness
of rural
areas
and
the
ensuing
migration
decreases
labour
input
for
landowners.
when
hoping
to
avoid
induces
them
to work
for
landowners.
On
the contrary,
it reduces
theThus,
attractiveness
ofbecome
rural
areas
andforce
the
ensuing
migration
decreases
labour
input
for landowners.
when
hoping
to avoid
labour
migration,
the
elite
will
choose
minimal
taxation.
This
implies
tax
revenues
an
eas
andforce
the ensuing
migration
decreases
labour
input
for landowners.
Thus,
when
hoping
to avoid
labour
migration,
the elitedecreases
will choose
minimal
taxation.
This implies
tax
revenues
become
an
eas
and
the
ensuing
migration
labour
input
for
landowners.
Thus,
when
hoping
to
avoid
labour
force
migration,
the
elite
will
choose
minimal
taxation.
This
implies
tax
revenues
become
an
unimportant
componentthe
of elite
landowner’s
income,
muting
incentives
to adopt
good
property
rights.
labour
force
migration,
will
choose
minimal
taxation.
This
implies
tax
revenues
become
an
unimportant
component
of
landowner’s
income,
muting
incentives
to
adopt
good
property
rights.
labour
force
migration,
the
will
choose
minimal
taxation.
Thiselite
implies
tax
revenues
become
an
unimportant
component
of elite
landowner’s
income,
muting
incentives
to adopt
good
property
rights.
To
avoid
migration
and
extract
more
labour
from
peasants,
the
select
poor
property
rights
unimportant
component
of landowner’s
income,
muting
incentives
to adopt
good
property
rights.
To avoid migration
and extract
more labour
from
peasants,
the elite
select good
poor property
property rights.
rights
unimportant
component
of landowner’s
income,
muting
incentives
to adopt
To avoid migration
andprevails
extract
morepeasants
labour
from
peasants,
the
elite
select
poor
property
rights
institutions.
This
logic
when
own
little
land.
If
peasants
own
sufficient
land,
howTo
avoid
migration
and
extract
more
labour
from
peasants,
the
elite
select
poor
property
rights
institutions.
This logic
prevails
when
peasants
own little
land. the
If peasants
ownpoor
sufficient
land,rights
howTo
avoid
migration
and
extract
more
labour
from
peasants,
elite
select
property
institutions.
logic
prevails
when farms
peasants
ownenough
little land.
peasants
own sufficient
land, however,
taxable This
income
from
peasants’
is high
thatIf
the
elite assign
greater importance
institutions.
This
logic
prevails
when
peasants
own
little
land.
If
peasants
own
sufficient
land,
however, taxable This
income
from
peasants’
farms
is high
enough
thatIfthe
elite assign
greater importance
institutions.
logic
prevails
when
peasants
own
little land.
peasants
own
sufficient
land,rights
however,
taxablefrom
income
from
peasants’
farms
is tax
high
enough
that
the
elite
assign
greater
importance
to
resources
taxation.
Thus,
to
increase
revenues,
the
elite
promote
strong
property
ever,
taxable income
from peasants’
farms is highrevenues,
enough that
the elite
assign
greater
importance
to
resources
taxation.
Thus, to increase
the elite
promote
strong
property
rights
ever,
taxablefrom
income
from peasants’
farms is tax
highrevenues,
enough that
the elite
assign
greater
importance
to
resources
from
taxation.
Thus, to increase
tax
the elite
promote
strong
property
rights
for
peasants.
to
resources
from taxation. Thus, to increase tax revenues, the elite promote strong property rights
forresources
peasants.from
to
taxation.
Thus,
to
increase
tax
revenues,
the
elite
promote
strong
property
rights
for peasants.
More precisely, the model predicts a non-monotonic relationship between the quality of rural
for peasants.
More precisely, the model predicts a non-monotonic relationship between the quality of rural
for
peasants.
More rights
precisely,
modelland.
predicts
a non-monotonic
relationship
between
quality
property
andthe
peasant
When
peasants’ landholdings
increase,
they the
work
more of
in rural
their
More rights
precisely,
the
modelland.
predicts
a non-monotonic
relationship
between
the
quality
of
property
and
peasant
When
peasants’
landholdings
increase,
they
work
more
in rural
their
More
precisely,
the
model
predicts
a
non-monotonic
relationship
between
the
quality
of
rural
property
rights
and
peasant
land.
When
peasants’
landholdings
increase,
they
work
more
in
their
own
plots
and
less
for
landowners.
Starting
with
very
limited
peasant
landholdings,
this
initially
property
rights
andfor
peasant
land. When
peasants’
landholdings
increase,
they work more
in their
own
plots
and
less
landowners.
Starting
with
very
limited
peasant
landholdings,
this
initially
property
andfor
peasant
land. When
peasants’
landholdings
increase,
they work
more
in their
own
plotsrights
and
landowners.
Starting
with
very
limited
peasant
thisHowever,
initially
strengthens
theless
rural
incentives
to reduce
property
rights in
order tolandholdings,
extract
labour.
own
plots and
less
forelite’s
landowners.
Starting
with
very limited
peasant
landholdings,
thisHowever,
initially
strengthens
the
rural
elite’s
incentives
to
reduce
property
rights
in
order
to
extract
labour.
own
plots and
less
landowners.
Starting
with
very
limited
peasant
landholdings,
thisHowever,
initially
strengthens
the
rural
elite’s
incentives
to reduce
property
rightsincome
in
order
extract
labour.
if
sufficient
land
is for
allocated
to peasants,
peasants’
taxable
is to
large
enough
and
the
elite
strengthens
the
rural
elite’s incentives
to reduce
property
rightsincome
in order
to
extract
labour.
However,
if
sufficient
land
is
allocated
to
peasants,
peasants’
taxable
is
large
enough
and
the
elite
strengthens
the
rural
elite’s
incentives
to
reduce
property
rights
in
order
to
extract
labour.
However,
if
sufficient
land issetting
allocated
toproperty
peasants,rights
peasants’
taxabletoincome
is tax
large
enough and the elite
prefers
promoting
good
institutions
increase
revenues.
if
sufficient
land
is
allocated
to
peasants,
peasants’
taxable
income
is
large
enough
and
the
elite
prefers
promoting
setting
good
property
rights
institutions
toincome
increase
revenues.
if
sufficient
land
isthe
allocated
toof
peasants,
peasants’
taxable
is tax
large
enough and
the elite
prefers
promoting
setting
good
property
rights
institutions
to and
increase
tax
revenues.
Therefore,
in
presence
landowner
political
power
a
small
subsistence
sector,
the
prefers
promoting
setting
good of
property
rightspolitical
institutions
to and
increase
tax revenues.
Therefore,
in the
presence
landowner
power
a small
subsistence sector, the
prefers
promoting
setting
good
property
rights
institutions
to
increase
tax
revenues.
Therefore,
presence
of landowner
power
and a small
subsistence
sector, the
theory
suggestsin
a the
specific
mechanism
for the political
endogenous
persistence
of bad
rural institutions
as
Therefore,
presence
of landowner
power
and a small
subsistence
sector, the
theory
suggestsin
a the
specific
mechanism
for the political
endogenous
persistence
of bad
rural institutions
as
Therefore,
in
the
presence
of
landowner
political
power
and
a
small
subsistence
sector,
the
theory suggests a specific mechanism for the endogenous persistence of bad rural institutions as
theory suggests a specific mechanism for the endogenous persistence of bad rural institutions as
theory suggests a specific mechanism for the endogenous persistence of bad rural institutions as
2
2
2
2
42
development unfolds. This contrasts other theories of the dual economy in which the disappearance
development unfolds. This contrasts other theories of the dual economy in which the disappearance
of
the subsistence
sector
a more orother
less theories
natural consequence
of an exogenous
process
of capital
development
unfolds.
Thisis contrasts
of the dual economy
in which the
disappearance
of the subsistence sector is a more or less natural consequence of an exogenous process of capital
accumulation.
In this
sense,
relates
to underdevelopment
theories
of the
“dependency”
of
the subsistence
sector
is a this
morework
or less
natural
consequence
of anaffect
exogenous
process
of capital
informal
property
rights
may
“tie”
households
to
property and
labor
decisions
is
accumulation.
In this
sense,
this
work
relates
totheir
underdevelopment
theories
of market
the “dependency”
1
.
As
Clarke
(1975)
puts
it:
“the
‘traditional’
social
tradition,
most
notably
applied
to
Africa
accumulation.
In
this
sense,
this
work
relates
to
underdevelopment
theories
of
the
“dependency”
1 . She
studied in amost
different
context
by Field
(2007).
examines
a large
titling
program
in urban social
Peru,
As Clarke
(1975)
puts
it: “the
‘traditional’
tradition,
notably
applied
to Africa
forms
are not
simply
relics
of thetopast
but1 .have
been
necessary
and integral
to‘traditional’
the development,
As
Clarke
(1975)
puts
it:
“the
social
tradition,
most
notably
applied
Africa
findingare
that
no legal
claimbeen
to property
work
hours
they spend
forms
notsquatter
simply families
relics of with
the past
but have
necessary
andfewer
integral
to –since
the development,
maintenance
and
reproduction
of peripheral
capitalism
(...) the and
state,
continues
to development,
support such
forms
are
not
simply
relics
of
the
past
but
have
been
necessary
integral
to
the
more hours per
week
maintaining
tenure
security–
arestate,
morecontinues
likely to work
inside their
maintenance
and
reproduction
of informal
peripheral
capitalism
(...)and
the
to support
such
‘traditional’
structures
[which] have
been made
thoroughly
modern,
poor,
and dependent”
(p. such
75).
maintenance
and
reproduction
of
peripheral
capitalism
(...)
the
state,
continues
to
support
homes.
‘traditional’
structures [which] have been made thoroughly modern, poor, and dependent” (p. 75).
‘traditional’
structures
[which]
have2000)
been famously
made thoroughly
modern, poor,
and dependent”
(p. 75).
Moredeveloping
generally,
De
Soto
(1989,
emphasized
to legal
property
The
world
provides
several
illustrations
of dualbarriers
rural economies
where, ownership
as in the
The developing
world
provides
illustrations
of dual rural
economies
where,the
asworld’s
in the
of assets
in developing
countries
as aseveral
major obstacle
for property
prosperity.
Without
titles,
model
in this
peasants
limited
and legal
less political
influence
Theproposed
developing
worldpaper,
provides
severalhave
illustrations
of dual rights
rural economies
where, as
in the
model
proposed
in this
paper,
peasants
have limited
property
rights
and less
politicalDeinfluence
poor landowners.
can’t
use their
houses,
land,
and
machines
as leverage
to gain
capital.
However,
Soto is
than
In
some
cases,
like
the
settler
colonies
of
Southern
Africa,
the
rural
dual
economy
model proposed in this paper, peasants have limited property rights and less political influence
than
In
cases,
like extralegality.
the settler colonies
of Southern
the rural
economy
more landowners.
vague
aboutinstitutionally
thesome
causes
of such
This
paper,
while Africa,
emphasizing
the dual
factor
market
has
fact been
and land
has been
geographically
along
racial
thaninlandowners.
In some cases, codified
like the settler
colonies
of Southern
Africa, segregated
the rural dual
economy
has
in fact been
institutionally
codified
and
land on
hastheir
beenpossible
geographically
segregated
along racial
consequences
of
imperfect
property
rights,
focuses
political
economy
determinants,
or
lines.
these economies,
the white
ruralhas
minority
historically had
much more
political
hasother
in fact
beenIninstitutionally
codified
and land
been geographically
segregated
along
racial
or
other
lines.
In
these
economies,
the
white
rural
minority
historically
had
much
more
political
arguing(and
that land)
property
rights
are intentionally
precarious.
power
than
the
black
rural
minority.
However,
the
theoretical
mechanisms
may
be
or other lines. In these economies, the white rural minority historically had much more political
power
(and
land)
than
the
black
rural
minority.
However,
the
theoretical
mechanisms
may
be
A fewfor
papers
provided
formal models
which
poor property
rights
may be
intentionally
relevant
manyhave
other
poor
countries
where in
large
landowners
have more
political
power
power (and
land)
than
the
black
rural minority.
However,
the often
theoretical
mechanisms
may
be
relevant
for by
many
other
poor countries
where large
landowners
often
havearemore
political
power
encouraged
elites.
However,
the
arguments
put
forward
in
this
paper
distinct.
In
Besley
and
better-defined
rights poor
than countries
smallholders
(see,
for landowners
example, Binswanger
Deininger
relevant
for many other
where
large
often haveand
more
political(1997),
power
and
better-defined
rights
than smallholders
(see, forofexample,
Binswanger
and on
Deininger
(1997),
and
Ghatak
(2010a),
for
example,
the
consequences
informal
property
rights
factor
markets
Deininger
and Binswanger
(1999),
Deininger (see,
and Feder
(2001), Binswanger
and World Bank
(2008)). (1997),
and better-defined
rights than
smallholders
for example,
and Deininger
Deininger
andsome
Binswanger
(1999), Deininger
and Feder
(2001),
and World
Bank
(2008)).
mayMoreover,
explain
groups’
interests
in
sustaining
them.
The
authors
explore
the
consequences
political economy
approach and
to explain
the dualistic
structure
of the
rural sector of
is
Deininger andthe
Binswanger
(1999), Deininger
Feder (2001),
and World
Bank
(2008)).
Moreover,
the
political
economy
approach
to
explain
the
dualistic
structure
of
the
rural
sector
is
creating
and
improving
property
rights
so
that
fixed
assets
can
be
used
as
collateral.
They
show
well-established.
large historical
that land
rights grow
out of power
relationships.
Moreover, theApolitical
economyliterature
approachshows
to explain
the dualistic
structure
of the rural
sector is
well-established.
A large
historical
that
land rights grow
outcompetition
of power relationships.
that
the
impact will
vary
with
theliterature
degreetoofshows
market
competition.
Where
is weak, it
Large
landowners
their
political
power
generate
distortions
in grow
various
discriminate
well-established.
Ause
large
historical
literature
shows
that
land rights
outmarkets
of powertorelationships.
Large
landowners
use their political
poweroff
to when
generate
distortions
in improve.
various markets
to discriminate
is
possible
that borrowers
willtheir
be worse
property
rights
Intuitively,
imperfect
against
peasants
and
support
(arguably
inefficiently
large)
estates.
al.
(1995)
Large landowners
use their
political
power
to generate
distortions
in
variousBinswanger
markets to et
discriminate
against peasants
andinsupport
their (arguably
inefficiently
large)ofestates.
Binswanger
et al.
(1995)
property
rights
may
effect
protect
borrowers
from
the
power
lenders
to
force
them
to
put
up
offer
a review,
noting
as assumed
this paperinefficiently
that getting
labour
for the
large estates
“required
against
peasants
and support
theirin(arguably
large)
estates.
Binswanger
et al.
(1995)
offer aofreview,
notingas
ascollateral.
assumed inAn
this
paper thatofgetting
labour
for the
largecertain
estatesconditions,
“required
more
their
wealth
implication
the theory
is that,
under
lowering
expected
utility
profits in
in the
peasant
sector
inlabour
order
to
peasants’
offer a review,
noting
as of
assumed
thisfree
paper
that getting
forreduce
the large
estatesreservation
“required
lowering expected
utility
of profits
in the free peasant
sector
in order to reduce peasants’ reservation
borrowers
may
thus
oppose
thesupply
improvement
of
property
rights.
utility
(...)
or
shift
their
labor
curve
to
the
right”
(p.
15).
Historically,
other
restrictions
on
lowering expected utility of profits in the free peasant sector in order to reduce peasants’ reservation
utility
(...)
or
shift
their
labor
supply
curve
to
the
right”
(p.
15).
Historically,
other
restrictions
on
Diaz mobility
(2000) argues
rural laws,
eliteslabour
prefer passes,
grantingetc.)
landhave
inefficiently
in Latin
America.
In her
argupeasant
in China,
America,
utility (...)
or shift(vagrancy
their labor
supply curve
to the right”
(p.been
15). present
Historically,
otherLatin
restrictions
on
peasant
mobility
(vagrancy
laws,defined
labour rights
passes,and
etc.)
have
been present
in China,
Latin
America,
ment,
granting
plots
with
poorly
low
productivity
“destroys”
land.
This
strategy
and
many
parts of
Africa. However,
the passes,
mechanisms
and objectives
of such
laws Latin
are much
more
peasant
mobility
(vagrancy
laws, labour
etc.) have
been present
in China,
America,
and many
parts of under
Africa.sufficiently
However,strong
the mechanisms
and objectives
of such
laws
are
much more
profits
landowners
complementarity
of
land
and
labour
and
sufficient
land
direct
and parts
easieroftoAfrica.
understand
than the
those
of weak property
rights. of
Theoretically,
these
policies
and many
However,
mechanisms
and objectives
such laws are
much
more
direct
and
easier
to
understand
than
those
of
weak
property
rights.
Theoretically,
these
policies
abundance.
She argues
these conditions
prevailed when
in Latin
Unfortunately,
other
just
correspond
migration
cost
that
increases
theseAmerica.
laws areTheoretically,
in place (like these
a many
sanction
or
direct
and easiertotoa understand
than
those
of weak property
rights.
policies
just correspond
to aland-reform
migration cost
that
increases
when
these laws In
arecontrast,
in place (like
a sanction or
distortions
on
the
sector
have
similar
consequences.
the
attractiveness
ajust
penalty
if caught
It is that
clearincreases
that thiswhen
detersthese
migration
and
therefore
be used by
correspond
to amigrating).
migration cost
laws are
in can
place
(like a sanction
or
a penalty
if caught
migrating).
It is clear
that this
deters upon
migration
and can therefore
be used by
of
poor
property
rights
in
the
theory
I
propose
depends
a
characteristic
that
distinguishes
elites
to
lower
labour
costs.
Property
rights,
instead,
also
have
the
productivity
effect
of
increasing
a penalty if caught migrating). It is clear that this deters migration and can therefore be used by
elitesdistortion
to lower labour
costs. Property
rights, instead,
alsoproductivity
have the productivity
effect
increasing
this
from
others:
it simultaneously
affects the
of the
andof the
costthis
of
taxable
hence
creating
the more
tradeoff
for productivity
elites
thatsector
iseffect
examined
in
elites to income,
lower labour
costs.
Property
rights,interesting
instead, also
have the
of increasing
taxable income,
hence
creating
moreoffers
interesting
tradeoff
for elitesonthat
is examined
in this
migration
to other
sectors.
Soninthe
(2003)
a theory
more focused
property
rights, though
paper.
taxable income, hence creating the more interesting tradeoff for elites that is examined in this
paper.
2 . The
his
emphasis this
is not
rural sector
He comparatively
uses the Russian
case
to argue
thatidea
the that
rich
However,
roleinofthe
property
rights or
hasland.
received
little
attention
paper.
2 . The idea that
However,
this
role
of
property
rights
has
received
comparatively
little
attention
have a comparative advantage in the private provision of property rights. Hence,2 poor definition
1However, this role of property rights has received comparatively little attention . The idea that
See Phimister (1979) for a historiographical essay. Arrighi (1970) argued, against the ideas in Barber (1961),
of property
rights for a wide cross section of the population allows them to use this comparative
1
Phimister
(1979) forbegan
a historiographical
essay. and
Arrighi
against the
ideasand
in that
Barber
that See
capitalist
development
with labour scarcity
high(1970)
wages,argued,
not unlimited
labour,
as (1961),
capital
1
See
Phimister
(1979)
forbegan
a the
historiographical
essay.(1972),
Arrighi
(1970)
argued,
against
ideasand
in that
Barber
(1961),
advantage
toproceeded
predate
poor.
that
capitalist
development
with
labour scarcity
and
high
wages,
notPalmer
unlimited
labour,
as Palmer
capital
accumulation
itfrom
created
cheap
labour.
Amin
Clarke
(1975),
and the
Parsons
(1977),
and
that
capitalist
development
began
with
labour
scarcity
andlatter
high
not
unlimited
and
that
as Palmer
capital
accumulation
proceeded
it created
cheap
labour.
Amin
Clarke
(1975),
Palmer
and labour,
Parsons
(1977),
and
(1977b)
express
similar views.
Below,
I draw
heavily
on(1972),
the
towages,
discuss
the
Rhodesian
case. Mosley
(1983)
offers
On a more
general
level, cheap
the paper
isAmin
related
to the
literature
on endogenous
institutions
and
accumulation
proceeded
it
created
labour.
(1972),
Clarke
(1975),
Palmer
and
Parsons
(1977),
and
Palmer
(1977b)
express
similar
views.ofBelow,
I draw heavily
on the latter to discuss the Rhodesian case. Mosley (1983) offers
a
critique
of certain
versions
underdevelopment
theory.
2
(1977b)
similar
views.
I draw
heavily
onBinswanger
the latter toetdiscuss
the (or
Rhodesian
case.and
Mosley
(1983)(1993)
offers
a critique
of certain
ofBelow,
underdevelopment
theory.
Forexpress
instance,
it versions
is not
part
of
the list
suggested
by
al. (1995)
Binswanger
Deininger
2
forcritique
the
case
of not
South
But
the mechanism
has notetbeen
completely
neglected, and
and Deininger
Binswanger
and
a
of certain
ofAfrica).
underdevelopment
theory.
Forspecific
instance,
it versions
is
part
of
the list
suggested
by Binswanger
al. (1995)
(or Binswanger
(1993)
2
Deininger
(1993) recognize
its relevance
they note:
“A furtheretdistortion
black African
farming was
the
For instance,
it is not part
of the listwhen
suggested
by Binswanger
al. (1995)against
(or Binswanger
and Deininger
(1993)
3 imposed by successive land laws [in South Africa], the
excessively restrictive ‘traditional’ communal tenure system
first and most important of which was the Glen Grey Act3of 1894” (p. 1461).
3
4
5
a penalty if caught migrating). It is clear that this deters migration and can therefore be used by
elites to lower labour costs. Property rights, instead, also have the productivity effect of increasing
taxable income, hence creating the more interesting tradeoff for elites that is examined in this
paper.
However, this role of property rights has received comparatively little attention2 . The idea that
informal
property rights may “tie” households to their property and affect labor market decisions is
1
See Phimister
a historiographical
essay.toArrighi
(1970) argued,
againstlabor
the ideas
in Barber
(1961),
informal
property(1979)
rightsformay
“tie” households
their property
and affect
market
decisions
is
studied
inproperty
a different
context
by
Field
(2007).
She
examines
a large
titlinglabor
program
inthat
urban
Peru,
informal
rights
may “tie”
households
to
their
property
andunlimited
affect
market
decisions
is
that
capitalist
development
began
with
labour
scarcity
and
high
wages,
not
labour,
and
as capital
studied inproperty
aproceeded
different
context
by Field
(2007).
Shetheir
examines
a large
titling
program
in urban
Peru,
informal
rights
may
“tie”
households
to
property
and
affect
labor
market
decisions
is
accumulation
it
created
cheap
labour.
Amin
(1972),
Clarke
(1975),
Palmer
and
Parsons
(1977),
and
Palmer
finding that
squatter context
families by
with
no (2007).
legal claim
to
property
work titling
fewer hours
–since
they spend
studied
inproperty
a different
Field
Shetheir
examines
a large
program
in urban
Peru,
informal
rights
may
“tie”
households
to
property
and
affect
labor
market
decisions
is
(1977b)
similar views.
Below,
IField
draw
onShe
the to
latter
to discuss
the Rhodesian
case.–since
Mosley
(1983)spend
offers
finding express
that
squatter
families
with
no heavily
legal claim
property
work
fewer hours
they
studied
in aper
different
context
by
(2007).
examines
a large
titling
program
in urban
Peru,
more
hours
week
maintaining
informal
tenure
security–
and
are more
likely
to–since
work
inside
their
finding
that
squatter
families
with
no
legal
claim
to
property
work
fewer
hours
they
spend
a
critique
of
certain
versions
of
underdevelopment
theory.
studied
in aper
different
context
by
Field
Shesecurity–
examines
a large
titling
program
in urban
Peru,
more
week
maintaining
informal
and
are (or
more
likely
to–since
work
inside
their
2 hours
finding
that
squatter
families
with
no (2007).
legaltenure
claim
to
property
work
fewer
hours
they spend
For
instance,
it
is notmaintaining
part of the
listinformal
suggested
by
Binswanger
et al.
(1995)
Binswanger
and
Deininger
(1993)
homes.
more
hours
per
week
tenure
security–
and
are
more
likely
to
work
inside
their
finding
that
squatter
families
with
no
legal
claim
to
property
work
fewer
hours
–since
they
spend
homes.
more
hours
per
week
maintaining
informal
tenure
security–
and
are
more
likely
to
work
inside
their
More generally, De Soto (1989, 2000) famously emphasized barriers to legal property ownership
homes.
more
hours
per
week
maintaining
informal
tenure
security–
and
are
more
likely
to
work
inside
their
More
generally,
De
Soto
(1989,
2000)
famously
emphasized
barriers
to
legal
property
ownership
3 for prosperity. Without legal titles, the world’s
homes.
of assets
in
developing
countries
as 2000)
a major
obstacle
More
generally,
De
Soto
(1989,
famously
emphasized
barriers
to
legal
property
ownership
homes.
of assets
in
developing
countries
as 2000)
a major
obstacleemphasized
for prosperity.
Without
legal
titles, the
world’s
More
generally,
Soto (1989,
famously
to legal
property
ownership
poor
can’t
use
theirDe
houses,
land,
and
machines
as for
leverage
tobarriers
gain
capital.
However,
De
Soto is
of
assets
in
developing
countries
as
a
major
obstacle
prosperity.
Without
legal
titles,
the
world’s
More
generally,
Soto (1989,
2000)
famously
to legal
property
ownership
poor
can’t
use
theirDe
houses,
land,
and
machines
asemphasized
leverage
tobarriers
gain
capital.
However,
De
Soto is
of
assets
in
developing
countries
as
a
major
obstacle
for
prosperity.
Without
legal
titles,
the
world’s
more can’t
vagueuse
about
thehouses,
causes land,
of suchand
extralegality.
This
paper,towhile
emphasizing
the factor
market
poor
their
machines
as
leverage
gain
capital.
However,
De
Soto
is
of
assets
in use
developing
countries
as and
a extralegality.
major
obstacle
for
prosperity.
Without
legal
titles,
the
more
vague
about
thehouses,
causes
of such
This
paper,towhile
emphasizing
the
factor
market
poor
can’t
their
land,
machines
as
leverage
gain
capital.
However,
De world’s
Soto is
consequences
of
imperfect
property
rights,
focuses
on
their
possible
political
economy
determinants,
more
vagueuse
about
thehouses,
causes land,
of suchand
extralegality.
This
paper,towhile
emphasizing
the factor
poor
can’t
machines
leverage
gain
capital.
However,
De market
Soto is
consequences
oftheir
imperfect
property
rights,
focusesas
on
their
possible
political
economy
more
vague
about
the causes
of
such
extralegality.
This
paper,
while
emphasizing
the determinants,
factor
market
arguing
that
property
rights
are
intentionally
precarious.
consequences
of
imperfect
property
rights,
focuses
on
their
possible
political
economy
determinants,
more
vague
the causes
of
extralegality.
This
paper,
whilepolitical
emphasizing
the factor market
arguing
thatabout
property
rights
aresuch
intentionally
precarious.
consequences
of imperfect
property
rights,
focuses
their
possible
economy
A fewthat
papers
have rights
provided
formal
models
in on
which
poor
property
rights
may bedeterminants,
intentionally
arguing
property
are
intentionally
precarious.
consequences
of imperfect
property
rights,
focuses
their
possible
political
economy
A fewthat
papers
have rights
provided
formal
models
in on
which
poor
property
rights
may bedeterminants,
intentionally
arguing
property
are
intentionally
precarious.
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the
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imperfect
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ofislenders
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thus oppose
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theory is in
that,
under
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Diaz
(2000)
argues
elites
prefer
granting
land
inefficiently
Latin
America.
her arguborrowers
may
thus
oppose
the
improvement
of
property
rights.
more
of their
asrural
collateral.
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of the
theory is in
that,
under
certainInconditions,
Diaz
(2000)
argues
elites
prefer
granting
land
inefficiently
Latin
America.
her arguborrowers
maywealth
thus
oppose
the
improvement
ofand
property
rights.
ment,
granting
plots
with
poorly
defined
rights
low productivity
“destroys”
land. This
strategy
Diaz
(2000)
argues
rural
elites
prefer
granting
land
inefficiently
in
Latin
America.
In her
arguborrowers
may
thus
oppose
the
improvement
of
property
rights.
ment,
granting
plots
with
poorly
defined
rights
andland
low productivity
“destroys”
land. This
strategy
Diaz
(2000)
argues
rural
elites
prefer
granting
inefficiently
in
Latin
America.
In
her
arguprofitsgranting
landowners
under
sufficiently
strong
complementarity
of land “destroys”
and labourland.
and sufficient
land
ment,
plots
with
poorly
defined
rights
andland
low productivity
This
strategy
Diaz
(2000)
argues
rural
elites
prefer
granting
inefficiently
in
Latin
America.
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her
arguprofits
landowners
under
sufficiently
strong
complementarity
of
land
and
labour
and
sufficient
land
ment,
granting
plots
with
poorly
defined
rights
and
low
productivity
“destroys”
land.
This
strategy
abundance.
She argues
these
conditions
prevailed
in Latin America.
Unfortunately,
many other
profits
landowners
under
sufficiently
strong
complementarity
of
land
and
labour
and
sufficient
land
ment,
granting
withthese
poorly
defined
rights
and low
productivity
“destroys”
land.
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strategy
abundance.
Sheplots
argues
conditions
prevailed
in Latin
America.
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many
other
profits
landowners
under
sufficiently
strong
complementarity
of
land
and
labour
and
sufficient
land
distortions
on
theargues
land-reform
sector have
similar in
consequences.
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the attractiveness
abundance.
She
these
conditions
prevailed
Latin America.
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many other
profits
landowners
under
sufficiently
strong
complementarity
of
land
and
labour
and
sufficient
land
distortions
on
the
land-reform
sector
have
similar
consequences.
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contrast,
the
attractiveness
abundance.
She argues
these
prevailed
in Latin
America.
Unfortunately,
many other
of
poor property
rights
in
the conditions
theory
propose
depends
upon
a characteristic
thatattractiveness
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distortions
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theargues
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sector Ihave
similar
consequences.
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the
abundance.
She
these
conditions
prevailed
in
Latin
America.
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many
other
of poor property
in the theory
propose
depends
upon a characteristic
thatattractiveness
distinguishes
distortions
on from
therights
land-reform
sector Ihave
similar
consequences.
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contrast,
the
this
distortion
others:
it simultaneously
affects
the productivity
the sector
and
the cost of
of
poor
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rights
in
the
theory
I
propose
depends
upon
a
characteristic
that
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distortions
on from
therights
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sector Ihave
similar
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contrast,
the
attractiveness
thispoor
distortion
others:
it simultaneously
affects
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the sector
and
the cost of
of
property
in the
theory
uponfocused
a characteristic
that
distinguishes
migration
to other
sectors.
Sonin
(2003)propose
offers
adepends
theory
more
on
property
rights,
this
distortion
from
others:
it
simultaneously
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the
productivity
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the
sector
and
the though
cost of
of
poor
property
rights
in
the
theory
I
propose
depends
upon
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characteristic
that
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migration
to other
sectors.
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(2003) offers
a theory
more focusedofon
property
rights,
though
this
distortion
from
others:
it
simultaneously
affects
the
productivity
the
sector
and
the
cost
of
his emphasis
is notsectors.
in the rural
sector
land. a He
uses more
the Russian
to arguerights,
that the
rich
migration
to other
Sonin
(2003)oroffers
theory
focusedofcase
on
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though
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distortion
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it
simultaneously
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the
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the
sector
and
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cost
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his emphasis
is notsectors.
in the rural
sector
oroffers
land. a He
uses more
the Russian
case
to arguerights,
that the
rich
migration
to other
Sonin
(2003)
theory
focused
on property
though
haveemphasis
a comparative
advantage
insector
the
private
provision
property
rights.
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his
is notsectors.
in
the rural
oroffers
land.
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usesofmore
the
Russian
case
to arguepoor
thatdefinition
the
rich
migration
to
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Sonin
(2003)
a
theory
focused
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though
haveemphasis
a comparative
advantage
insector
the private
provision
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property
rights.
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poor
definition
his
is
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in
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or
land.
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uses
Russian
case
to
argue
that
the
rich
of property
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section
of the
population
allows rights.
them toHence,
use this
comparative
have
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insector
the
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provision
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poor
definition
his
emphasis
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the
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or
land.
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uses
Russian
case
to
argue
that
the
rich
of
property
rights foradvantage
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section
of the
population
allows rights.
them toHence,
use this
comparative
have
a comparative
in the
private
provision
of property
poor
definition
advantage
torights
predate
from
thecross
poor.
of
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for
a
wide
section
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have
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in the
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poor
definition
advantage
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alevel,
wide
section
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allowsonrights.
them
toHence,
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comparative
On a more
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paper
is related
to
the literature
endogenous
institutions
and
advantage
to
predate
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of
property
for from
alevel,
wide
cross
section
of the to
population
allowsonthem
to use this
comparative
On a more
general
the
paper
is related
the literature
endogenous
institutions
and
advantage
torights
predate
the
poor.
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more
general
level,
the
paper
is
related
to
the
literature
on
endogenous
institutions
and
advantage
to case
predate
from
the
for the
of South
Africa).
But
the is
mechanism
hasthe
not literature
been completely
neglected, and
Binswanger and
and
Onspecific
a more
general
level,
thepoor.
paper
related to
on endogenous
institutions
for
the specific
case
of South
Africa).
But
thethey
mechanism
has
not been
completely
neglected,
and Binswanger
and
Deininger
(1993)
recognize
its
relevance
when
note:
“A
further
distortion
against
black
African
farming
was
the
On a more
general
level, the But
paper
ismechanism
related to
the
literature
on endogenous
institutions
and
for
the specific
case
of‘traditional’
South
thethey
not been
neglected,
and
Binswanger
Deininger
(1993)
recognize
its Africa).
relevance
when
note:
“Ahas
further
distortion
against
black
African
farming
was and
the
excessively
restrictive
communal
tenure
system
imposed
by completely
successive
land
laws
[in
South
Africa],
for
the specific
case
of‘traditional’
South
Africa).
But
thethey
mechanism
has
not
been
completely
neglected,
and
Binswanger
and
institutional
persistence.
It
concurs
with
the
political
economy
or
“social
conflict
view”
of
instituDeininger
(1993)
recognize
its
relevance
when
note:
“A
further
distortion
against
black
African
farming
was
excessively
restrictive
communal
tenure
system
imposed
by
successive
land
laws
[in
South
Africa],
the
first and most important of which was the Glen Grey Act of 1894” (p. 1461).
Deininger
(1993)case
recognize
its Africa).
relevanceBut
when
note: “Ahas
further
distortion
againstneglected,
black African
farming was and
the
for
the specific
of South
thethey
mechanism
not been
completely
and Binswanger
first and most important of which was the Glen Grey Act of 1894” (p. 1461).
first and (Acemoglu
most
important
of which
was
the Glen
Grey
Act4of imposed
1894”
(p.by
1461).
excessively
restrictive
‘traditional’
communal
tenure
system
successive
land laws
[in institutions
South Africa], are
the
benefit
et
al.,
2005).
This
view
contrasts
others
which
emphasize
that
first and most important of which was the Glen Grey Act4of 1894” (p. 1461).
excessively
restrictive
‘traditional’
communal
tenure
by1461).
successive land laws [in South Africa], the
first and
most
important
of which
was
the institutions
Glen
Greysystem
Actarise
of imposed
1894”
tions
which
contends
that
inefficient
and (p.
persist
because
powerful
groups
excessively
restrictive
‘traditional’
communal
tenure
system
imposed
by successive
land
laws
[in political
South
Africa],
Deininger
(1993)
recognize
its relevance
when they
note:
“A further
distortion
against
black
African
farming
was the
largely determined by economic forces, ideology,4or historical accidents. The paper is closely re6
lated, both in following this approach and in the 4formal analysis, to Acemoglu (2006). Specifically,
4
the theoretical mechanisms capture two of the sources for inefficient institutions highlighted by
institutional persistence. It concurs with the political economy or “social conflict view” of instituinstitutional persistence. It concurs with the political economy or “social conflict view” of institutions which contends that inefficient institutions arise and persist because powerful political groups
tions which contends that inefficient institutions arise and persist because powerful political groups
benefit (Acemoglu et al., 2005). This view contrasts others which emphasize that institutions are
benefit (Acemoglu et al., 2005). This view contrasts others which emphasize that institutions are
largely determined by economic forces, ideology, or historical accidents. The paper is closely relargely determined by economic forces, ideology, or historical accidents. The paper is closely related,
both in following this
approachwith
and in the
formaleconomy
analysis, to Acemoglu
(2006).
institutional
It concurs
political
conflict
view”Specifically,
of institulated, both inpersistence.
following this
approach andthe
in the
formal analysis,orto“social
Acemoglu
(2006).
Specifically,
the
theoretical
mechanisms
capture
two
of
the
sources
for
inefficient
institutions
highlighted
by
tionstheoretical
which contends
that inefficient
andfor
persist
because
powerful political
groups
the
mechanisms
capture institutions
two of the arise
sources
inefficient
institutions
highlighted
by
Acemoglu
(2006).
The
first
source,
revenue
extraction,
in
which
elites
extract
resources
from
other
benefit (Acemoglu
et al.,
2005).
This
view contrasts
which
emphasize
that institutions
are
Acemoglu
(2006). The
first
source,
revenue
extraction,others
in which
elites
extract resources
from other
groups
in
society
via
instruments
which,
like
taxation,
are
typically
distortionary.
The
second
largely determined
by instruments
economic forces,
ideology,
or historical
accidents.
The paper isThe
closely
regroups
in society via
which,
like taxation,
are typically
distortionary.
second
3.
source,
factor
price
manipulation,
arises
when
the
elite
compete
for
factors
3
lated, both
in following
this approach
andwhen
in the
analysis, for
to Acemoglu
source,
factor
price manipulation,
arises
theformal
elite compete
factors3 . (2006). Specifically,
the theoretical mechanisms capture two of the sources for inefficient institutions highlighted by
The paper proceeds as follows. In Section 2, I lay out the basic setup of the model. Section 3
The paper
proceeds
as follows.
In Section
2, I lay out
the basic
of the
model.from
Section
Acemoglu
(2006).
The first
source, revenue
extraction,
in which
elitessetup
extract
resources
other3
describes the economic equilibrium for a given set of institutions. Next, Section 4 characterizes the
describes
economic
equilibrium which,
for a given
of institutions.
Next, distortionary.
Section 4 characterizes
the
groups
in the
society
via instruments
like set
taxation,
are typically
The second
equilibrium institutions by finding the political equilibrium and describes the main results. Section
3
equilibrium
institutions
by finding arises
the political
equilibrium
and describes
the. main results. Section
source,
factor
price manipulation,
when the
elite compete
for factors
5 discusses a simple but important extension to the baseline model. Section 6 offers an historical
5 discusses a simple but important extension to the baseline model. Section 6 offers an historical
discussion
on the
relevance
of someIn
of the model’s
assumptions
and setup
predictions,
using the
case of3
The paper
proceeds
as follows.
2, I lay
out the basic
of the model.
Section
discussion
on the
relevance
of some of Section
the model’s
assumptions
and predictions,
using the
case of
Rhodesia.
Section
7
concludes
with
some
final
thoughts.
describes the
economic
equilibrium
a given
of institutions. Next, Section 4 characterizes the
Rhodesia.
Section
7 concludes
withfor
some
final set
thoughts.
equilibrium institutions by finding the political equilibrium and describes the main results. Section
5 discusses
a simpleof
but(Poor)
importantProperty
extension to Rights
the baseline
Section 6 offers
an historical
2
A Model
inmodel.
the (Dual)
Rural
Econ2
A
Model
of
(Poor)
Property
Rights
in
the
(Dual)
Rural
Econdiscussion
on the relevance of some of the model’s assumptions and predictions, using the case of
omy
omySection 7 concludes with some final thoughts.
Rhodesia.
Consider a society with three sectors. The urban sector (denoted by U ) and two rural or agricultural
Consider a society with three sectors. The urban sector (denoted by U ) and two rural or agricultural
subsectors: the capitalist or elite sector (E) and the peasant or subsistence sector (S). The rural
2
A Model
of (Poor)
Property
inorthe
(Dual)
Rural
Econsubsectors:
the capitalist
or elite sector
(E) andRights
the peasant
subsistence
sector
(S). The
rural
sector as a whole is denoted by R. I now describe these sectors and set the basic notation.
sectoromy
as a whole is denoted by R. I now describe these sectors and set the basic notation.
2.1
The
rural with
sector
Consider
a society
three sectors. The urban sector (denoted by U ) and two rural or agricultural
2.1 The
rural sector
subsectors:
capitalist
elite
and the peasant
or subsistence
sector
(S). The
In
the rural the
sector
R thereorare
twosector
types(E)
of producers.
Capitalists
landowners
controlling
the rural
elite
In the rural sector R there are two types of producers. Capitalists landowners controlling the elite
sector as aEwhole
is denotedpowerful
by R. I now
sectors
set the but
basichave
notation.
subsector
are politically
and describe
own mostthese
of the
land and
in society,
no labour of
subsector E are politically powerful and own most of the land in society, but have no labour of
their own. Peasant farmers in the subsistence subsector S face the opposite situation: while their
their own. Peasant farmers in the subsistence subsector S face the opposite situation: while their
2.1 The
rural
political
power
andsector
ownership of land is limited, they are the sole suppliers of labour in society.
political power and ownership of land is limited, they are the sole suppliers of labour in society.
The
political
powerRofthere
the elite
translates
into
the ability
to select two
key variables:
taxation
and
In the
rural sector
are two
types of
producers.
Capitalists
landowners
controlling
the elite
The
political
power of the elite
translates
into
the ability
to select two
key variables:
taxation
and
property
rights
protection
in
the
rural
subsistence
sector.
subsectorrights
E areprotection
politicallyinpowerful
own mostsector.
of the land in society, but have no labour of
property
the ruraland
subsistence
There
are
L
peasant
households
in
the
economy,
each possessing
a unit of labour, and
the size
their
own.are
Peasant
farmers
in the subsistence
subsector
face the opposite
while
There
L peasant
households
in the economy,
eachSpossessing
a unit ofsituation:
labour, and
thetheir
size
of the elite
is normalized
to 1. Peasants
may
stay in
the are
rural
areas
or
migrate of
to labour
the urban
sector.
political
power
and
ownership
of
land
is
limited,
they
the
sole
suppliers
in
society.
of the elite is normalized to 1. Peasants may stay in the rural areas or migrate to the urban sector.
I denote
the number
ofthe
migrating
households
with
m.
Each
household
in the
rural areas
allocates
The
political
power ofof
elite translates
intowith
the m.
ability
tohousehold
select two iikey
variables:
taxation
and
I denote
the number
migrating
households
Each
in the
rural areas
allocates
of
its
labour
input
to
the
subsistence
sector
and
the
rest
(1
−
e
)
to
the
landowner
a
share
e
i
i
property
protection
in thetorural
a share erights
ii of its
labour input
the subsistence
subsistence sector.
sector and the rest (1 − eii ) to the landowner
3There are L peasant households in the economy, each possessing a unit of labour, and the size
Political
consolidation,
alsoown
a powerful
source of
inefficient
if the elite’s
power is threatened
sector.
Since
landowners
no labour,
the
labour institutions
input in their
farmspolitical
(LE ) amounts
to total
3
3 Political consolidation, also a powerful source of inefficient institutions if the elite’s political
power
is
Political
consolidation,
also
a
powerful
source
of
inefficient
institutions
if
the
elite’s
political
power
is threatened
threatened
when
other
groups
prosper,
is
not
explored
in
this
paper.
of
the
elite
is
normalized
to
1.
Peasants
may
stay
in
the
rural
areas
or
migrate
to
the
urban
sector.
(1this
− epaper.
peasant
is,is
when
otherinput.
groups That
prosper,
isLnot
not
explored
in
this
paper.
i ). Total labour input in the rural sector is defined as
E =
when
other
groups
prosper,
explored
i∈Rin
ILdenote
the number
of migrating households with m. Each household
i in the rural areas allocates
R =
i∈R 1, and in the subsistence subsector5 as LS =
i∈R ei . Hence, LE = LR − LS and
landowner
aL share
e of its labour input to the subsistence
5 sector and the rest (1 − ei ) to
as the
given.
R = L −i m. Landowners hire labour and pay a wage rate wE , which they take
Total
land
amounts also
to Ta powerful
hectares.
Outofofinefficient
these, tinstitutions
hectares ifare
by peasants
and the
Political
consolidation,
source
thecontrolled
elite’s political
power is threatened
3
when
other
groups
is not explored
in this each
paper.household
rest by
the
elite.prosper,
For simplicity,
I assume
t/L units of land.
5
The capitalist or elite subsector
7
has the same initial land endowment of
sector. Since landowners own no labour, the labour input in their farms (LE ) amounts to total
sector. Since landowners own no
labour, the labour input in their farms (LE ) amounts to total
peasant input. That is, LE = i∈R (1 − ei ). Total labour input in the rural sector is defined as
input in the rural sector is defined as
peasantinput. That is, LE = i∈R (1 − ei ). Total labour LR = i∈R 1, and in the subsistence subsector as LS = i∈R ei . Hence, LE = LR − LS and
LR =
i∈R 1, and in the subsistence subsector as LS =
i∈R ei . Hence, LE = LR − LS and
LR = L − m. Landowners hire labour and pay a wage rate wE , which they take as given.
LR = L − m. Landowners hire labour and pay a wage rate wE , which they take as given.
Total land amounts to T hectares. Out of these, t hectares are controlled by peasants and the
Total land amounts to T hectares. Out of these, t hectares are controlled by peasants and the
rest by the elite. For simplicity, I assume each household has the same initial land endowment of
rest by the elite. For simplicity, I assume each household has the same initial land endowment of
t/L units of land.
t/L units of land.
The capitalist or elite subsector
The capitalist or elite subsector
The
The
tion
tion
capitalist agricultural sector consists of a representative landowner with the following produccapitalist agricultural sector consists of a representative landowner with the following producfunction:
function:
1
Lαα ,
AE F (T − t, LE ) = AE 1 (T − t)1−α
AE F (T − t, LE ) = AE α (T − t)1−α LE
E,
α
where α ∈ (0, 1) and AE is a productivity term that will be normalized to 1.
where α ∈ (0, 1) and AE is a productivity term that will be normalized to 1.
The consumption of a representative member of the elite is the sum of farm profits (πE ) and a
The consumption of a representative member of the elite is the sum of farm profits (πE ) and a
lump-sum transfer TE :
lump-sum transfer TE :
cE
cE
=
=
=
=
πE + T E ,
πE + T E ,
[F (T − t, LE ) − wE LE ] + TE .
[F (T − t, LE ) − wE LE ] + TE .
Notice that in the expression for cE there are no taxes imposed on the elite’s farm income, as elite
Notice that in the expression for cE there are no taxes imposed on the elite’s farm income, as elite
members would never tax themselves.
members would never tax themselves.
The peasant or subsistence subsector
The peasant or subsistence subsector
The rural subsistence sector has potentially weaker property rights institutions than the elite sector.
The rural subsistence sector has potentially weaker property rights institutions than the elite sector.
Thus, a key assumption concerns the impact of property rights. Defining property rights is not
Thus, a key assumption concerns the impact of property rights. Defining property rights is not
simple. First, property rights refer to a variety of rights. These include: (i) transfer rights, which
simple. First, property rights refer to a variety of rights. These include: (i) transfer rights, which
determine the right to sell, rent, bequeath, or mortgage the land, and (ii) use rights, which establish
determine the right to sell, rent, bequeath, or mortgage the land, and (ii) use rights, which establish
permissible activities. Second, there are many types of property rights. A key distinction is between
permissible activities. Second, there are many types of property rights. A key distinction is between
communal systems, where a customary authority holds and administers land rights, and private
communal systems, where a customary authority holds and administers land rights, and private
property rights, which lie in the hands of individuals.
property rights, which lie in the hands of individuals.
Despite the conceptual difficulties, in the model I just assume that a fall in “property rights”
Despite the conceptual difficulties, in the model I just assume that a fall in “property rights”
produces two effects that are present under various meanings of the term. The first effect is that
produces two effects that are present under various meanings of the term. The first effect is that
it increases the cost of migration. The logic for this effect is very simple: with worse property
it increases the cost of migration. The logic for this effect is very simple: with worse property
rights, like less security against expropriation, absence of selling or renting rights, or with land use
rights, like less security against expropriation, absence of selling or renting rights, or with land use
rights that are contingent on staying in the land as in many communal systems, migraton creates
rights that are contingent on staying in the land as in many communal systems, migraton creates
additional costs. Indeed, migration implies that land rights are lost, or the land is stolen, or it
additional costs. Indeed, migration implies that land rights are lost, or the land is stolen, or it
cannot be sold or rented out.
6
The second effect is that a lower level of property
rights reduces the productivity of the subsis6
tence sector. The underlying theory justifying this assumption is summarized by Besley and Ghatak
(2010b) under two broad categories. First, secure property rights limit expropriation, incentivizing
investment and effort and reducing resources diverted for protection. Second, well-defined individual rights facilitate market transactions, improving asset collaterilazability (which may ease
credit constraints that hinder investments) and generating gains from trade (by making sure land
is held by the most productive owner). Although communal tenure systems may increase tenure
8
security and provide some basis for land transactions under certain circumstances (Deininger and
Binswanger, 1999), in practice private property rights, when clearly specified and well-enforced,
The second effect is that a lower level of property rights reduces the productivity of the subsisThe
second
effect
is that atheory
lowerjustifying
level of property
rights reduces
the productivity
theGhatak
subsistence
sector.
The
underlying
this assumption
is summarized
by Besleyofand
tence sector. The underlying theory justifying this assumption is summarized by Besley and Ghatak
tence
sector.
theory justifying
this property
assumption
is summarized
by Besleyincentivizing
and Ghatak
(2010b)
underThe
twounderlying
broad categories.
First, secure
rights
limit expropriation,
(2010b) under two broad categories. First, secure property rights limit expropriation, incentivizing
(2010b)
under
broad
secure
property
limit expropriation,
incentivizing
investment
andtwo
effort
andcategories.
reducing First,
resources
diverted
for rights
protection.
Second, well-defined
indiinvestment and effort and reducing resources diverted for protection. Second, well-defined indiinvestment
effort and
reducing
resourcesimproving
diverted for
protection.
Second, well-defined
vidual
rightsand
facilitate
market
transactions,
asset
collaterilazability
(which may indiease
vidual rights facilitate market transactions, improving asset collaterilazability (which may ease
vidual
rights facilitate
marketinvestments)
transactions,and
improving
asset
collaterilazability
(which may
ease
credit constraints
that hinder
generating
gains
from trade (by making
sure land
credit constraints that hinder investments) and generating gains from trade (by making sure land
credit
that
hinder investments)
and generating
gains
fromsystems
trade (by
making
sure
land
is heldconstraints
by the most
productive
owner). Although
communal
tenure
may
increase
tenure
is
held by
the most
productive
owner). Although communal tenure systems may increase tenure
cannot
be
sold
or
rented
out.
is
held by
theprovide
most productive
communal
tenurecircumstances
systems may increase
tenure
security
and
some basis owner).
for land Although
transactions
under certain
(Deininger
and
security
and provide
some
basis
for land
transactions
underreduces
certain the
circumstances
(Deininger
and
The
second
effect
is
that
a
lower
level
of
property
rights
productivity
of
the
subsissecurity
and provide
basis private
for landproperty
transactions
under
certain
and
Binswanger,
1999), insome
practice
rights,
when
clearlycircumstances
specified and(Deininger
well-enforced,
Binswanger,
1999),
in
practice
private
property
rights,
when
clearly
specified
and
well-enforced,
4
tence sector.
The underlying
theory
justifying
thisrights,
assumption
summarized
by Besley
and Ghatak
Binswanger,
1999),
ininpractice
private
whenisclearly
specified
and well-enforced,
. property
improve
productivity
agriculture
4.
improve
productivity
in
agriculture
4
(2010b)
under
two broad
categories.
propertycaptured
rights limit
incentivizing
improve
productivity
Property
rights
in in
theagriculture
subsistence.First,
sectorsecure
are therefore
by aexpropriation,
positive scalar
µ ∈ µ, µ̄,
Propertyand
rights
in the
sector arediverted
therefore
by a Second,
positive well-defined
scalar µ ∈ µ,
µ̄,
investment
andsubsistence
reducing
resources
forcaptured
protection.
indiProperty
in the
subsistence
sector are therefore
captured
byaffects
a positive
scalar
∈ µ,
µ̄ ,
where
a largerrights
µ effort
both
increases
the productivity
of the subsector
and
the cost
of µ
migration.
where
a
larger
µ
both
increases
the
productivity
of
the
subsector
and
affects
the
cost
of
migration.
vidual
market
transactions,
improving
asset collaterilazability
(which
may ease
where
arights
larger
µfirst
both
increases
the productivity
of the
subsector
andassume
affects that
the cost
migration.
To
capture
thefacilitate
part,
I consider
a reduced-form
formulation
and
eachofhousehold’s
To
capture
the
first
part,
I
consider
a
reduced-form
formulation
and
assume
that
each
household’s
credit
constraints
that
hinder
investments)
gainsand
from
trade that
(by making
sure land
To capture
thesubsistence
first
part,
Isector
consider
a reduced-form
formulation
assume
each household’s
output
in the
is given
by and generating
output
in
the
subsistence
sector
is
given
by
is
held by
the subsistence
most productive
Although communal tenure systems may increase tenure
output
in the
sector owner).
is given by
1 s 1−α α
s
security and provide some basisAfor
, ei ) = A (µ) under
eαi , circumstances (Deininger and
(µ)land
f (xsi transactions
1 (xi ) certain
α
A (µ) f (xis , ei ) = A (µ) 1 (xsis )1−α
1−α eiα ,
(µ) α (x
) clearly
ei , specified and well-enforced,
(µ) f (xproperty
Binswanger, 1999), in practiceAprivate
when
i , ei ) = Arights,
α i
s
s
4
where xsiproductivity
is the land in
input
(with .
xsi = t). Also, I assume A(µ) = µAE , with µ̄ = 1 and
improve
agriculture
where xis is the land input (with i∈R
xis = t). Also, I assume A(µ) = µAE , with µ̄ = 1 and
i∈R
where
xi(i.e.
is the
(withthis i∈R
xi =aret).therefore
Also,
I captured
assume
= µA
with
µ̄µ =
1µ,and
µ small
µ ≈land
0).
Adopting
functional
form
simplifies
theA(µ)
analysis
and
satisfies
key
E , scalar
Property
rights
in input
the
subsistence
sector
by
a positive
∈two
µ̄ ,
µ small (i.e. µ ≈ 0). Adopting this functional form simplifies the analysis and satisfies two key
µ
smalla larger
(i.e.A µ(µ)
0).0 increases
Adopting
this
form
the
analysis
andcost
satisfies
two and
key
>
and A (µ̄)the
= productivity
Afunctional
follows
the
theoretical
arguments
properties:
E . The first
where
µ≈both
ofproperty
thesimplifies
subsector
and
affects
the
of migration.
properties: A (µ) > 0 and A (µ̄) = AE . The first property follows the theoretical arguments and
0 andI consider
A (µ̄)
= aAStill,
. The
firstremain
property
follows
the
theoretical
arguments
and
properties:
A (µ)
empirical
referred
to
before.
I will
agnostic
about
the exact
channels
at play.
E
To captureevidence
the
first>
part,
reduced-form
formulation
and
assume
that each
household’s
empirical evidence referred to before. Still, I will remain agnostic about the exact channels at play.
empirical
referred
to before.
Still,
remain
agnostic
about
the exact
at play.
The
second
is a sector
useful
with
perfect
property
rights,
both channels
rural sectors
are
output
in evidence
theproperty
subsistence
isbenchmark:
given
byI will
The second property is a useful benchmark: with perfect property rights, both rural sectors are
The second property
is a useful benchmark: with perfect property rights, both rural sectors are
technologically
identical.
technologically identical.
1 s 1−α α
technologically
identical.
To capture the
second part, AI assume
can rent his land, but
, ei ) a=migrating
A (µ) (xpeasant
ei household
,
(µ) f (xsithat
i)
α
To capture the second part, I assume that a migrating peasant household can rent his land, but
To
capture
the
second
part,
I
assume
that
a
migrating
peasant
household
rent his land,
but
the poor definition of property rights
expropriation of his land uponcan
migration.
Hence,
if
facilitates
the
poor
definition
of
property
rights
facilitates
expropriation
of
his
land
upon
migration.
Hence,
if
s
s
where
x
is
the
land
input
(with
x
=
t).
Also,
I
assume
A(µ)
=
µA
,
with
µ̄
=
1
and
E
of property
facilitates
expropriation
of his
upon migration.
if
rthe
is poor
the prevailing
rate ofrights
land from
sector,
theland
migrating
household Hence,
will only
i definitionrental
ithe subsistence
i∈R
rµ issmall
the
prevailing
rental
rate of land
from
the subsistence
sector,the
the analysis
migrating
household
will
only
t
(i.e.
µ
≈
0).
Adopting
this
functional
form
simplifies
and
satisfies
two
key
r is µ
the
rental rate
of remaining
land from fraction
the subsistence
migrating household
only
rprevailing
as rental income.
The
(1 − µ) sector,
may bethe
expropriated
and sharedwill
among
get
t
The
remaining
fraction
(1
− µ) may
be expropriated
andarguments
shared among
get
µL
(µ) income.
t r as rental
L
>
0
and
A
(µ̄)
=
A
.
The
first
property
follows
the
theoretical
and
properties:
A
E rate
remaining
fraction
(1 in
− µ)
be expropriated
shared
among
get non-migrating
µ L r as rental income.
all
peasants.The
The
rental
of land
themay
subsistence
sector is and
taken
as given
by
all
non-migrating
peasants.
The
rental
rate
of
land
in
the
subsistence
sector
is
taken
as
given
by
empirical
evidence
referred
to
before.
Still,
I
will
remain
agnostic
about
the
exact
channels
at
play.
all non-migrating
peasants.
The rental sector.
rate of land
in the subsistence
sector
is taken
as given
individual
members
of the subsistence
Subsistence
farmers cannot
rent
land from
nor by
to
individual
members
ofis the
subsistence
sector.with
Subsistence
farmers cannot
rent land
from
norare
to
The
second
property
a
useful
benchmark:
perfect
property
rights,
both
rural
sectors
individual members of the subsistence sector. Subsistence farmers cannot rent land from nor to
technologically
identical.
A microeconomic
literature,
too vacant
large toland
do itisjustice,
the effects
property rights
investment
the44 landowners.
Note
also that
sharedexamines
by peasants,
notoflandlords.
Thison
assumption
A microeconomic
literature,
too
large toland
dovariables
itisjustice,
examines
the effects
property rights
investment
the4productivity.
landowners.
Note
also that
vacant
shared
by peasants,
notof
landlords.
Thison
assumption
and
Papers
using
an
instrumental
strategy
to
address
the
endogeneity
problem
offer
mixed
To
capture
the
second
part,
I large
assume
that
a migrating
peasant
household
can
rent
his
land,
but
A microeconomic
literature,
too
do
it justice,
examines
thewould
effects
of
property
rights
on offer
investment
stacks
the
decks
against
the
oftothe
model,
aseffects
landlords
have
aon
direct
interest
and
productivity.
Papers
using
anresults
instrumental
variables
strategy
to
address
the clearly
endogeneity
problem
mixed
results.
For
example,
Besley
(1995)
reports
some
positive
of
individual’s
transfer
rights
investment
in
stacks
the
decks
against
the
results
of
the
model,
as
landlords
would
clearly
have
a
direct
interest
and
productivity.
Papers
using
an
instrumental
variables
strategy
to
address
the
endogeneity
problem
offer
mixed
results.
For
example,
Besley
(1995)
reports
some
positive
effects
of
individual’s
transfer
rights
on
investment
in
the
poor
definition
of property
rights
of
land upon
migration.
if
Ghana,
whereas
Brasselle
etifal.
(2002)
findfacilitates
no
effectalso
ofexpropriation
tenure
securityby
onhis
investment
in Burkina
Faso. Hence,
However,
in
poor
property
rights
vacant
land
could
be
grabbed
them.
results.
For example,
Besley
(1995)
reports
some
positive
effects
of individual’s
transfer
rights onFaso.
investment
in
Ghana,
whereas
Brasselle
et
al.
(2002)
find
no
effect
of
tenure
security
on
investment
in
Burkina
However,
in poor
property
rights ifinvacant
landofcould
alsorights
be grabbed
bynatural
them.experiments or policy reforms find
other
studies
using
variation
the
security
property
induced
by
rGhana,
is Consumption
the
prevailing
rental
rate
ofsecurity
land
from
the issubsistence
sector,
the
migrating
household
only
whereas
Brasselle
et in
al.the
(2002)
find
effect
ofrights
tenure
security
on
investment
in Burkina
Faso.
However,
of
non-migrating
peasants
the
sum
of
farm
profits
and
wages
(π
) will
and
any
iSreforms
other
studies
using
variation
ofnoproperty
induced
by
natural
experiments
or policy
find
positive
effects
of better
property
rights
(e.g.
Banerjee
et
al. sum
(2002),
Goldstein
and
Udry
(2008),
Hornbeck
(2010),
Consumption
of
non-migrating
peasants
is
the
of
farm
profits
and
wages
(π
)
and
any
other
studies
using
variation
in
the
security
of
property
rights
induced
by
natural
experiments
or
policy
reforms
find
t
iS
positive
of rents
better
property
rights
(e.g.
Banerjee
al.
(2002),
Goldstein
and elite
Udry farmers,
(2008),
(2010),
reffects
as
rental
income.
The
remaining
fraction
(1
− µ) may
be
expropriated
and
shared
among
get
µ Let
Jacoby
al.land
(2002)).
In expropriated
a recent
survey
for the
case
of et
West
Africa,
Fenske
(2010)
concludes
that,Hornbeck
empirically,
the
potential
from
migrating
households.
Unlike
peasant
may
positive
effects
of better
property
rights (e.g.
Banerjee
et
al. (2002),
Goldstein
and concludes
Udry (2008),
Hornbeck
(2010),
Jacoby
et
al.
(2002)).
In
a
recent
survey
for
the
case
of
West
Africa,
Fenske
(2010)
that,
empirically,
the
potential
land
rents
expropriated
from
migrating
households.
Unlike
elite
farmers,
peasant
may
link
between
more
complete
land
rights
and
investment
has
been
found
to
be
weaker
than
expected.
Several
reasons
all
non-migrating
peasants.
The
rental
rate
ofof has
land
in
the
subsistence
sector
iselite
taken
asrationally
given
by
Jacoby
et al. more
(2002)).
In
aon
recent
survey
for investment
the
casethey
West
Africa,
Fenske
(2010)
concludes
that,
empirically,
the
farm
revenue,
and
receive
no
redistribution
(the
will
face
positive
taxes
τ
S
link
between
complete
land
rights
and
been
found
to
be
weaker
than
expected.
Several
reasons
ranging
from thin
credit
markets
to revenue,
empirical and
difficulties
help
explain
this, yet in an examination
of
multiple
data
on
farm
they
receive
no
redistribution
(the
elite
will
rationally
face
positive
taxes
τ
link
between
more
complete
land
rights
and
investment
has
been
found
to
be
weaker
than
expected.
Several
reasons
S
ranging
from
thin revenues
credit
toseems
empirical
difficulties
help
explain farmers
this,
an examination
multiple
individual
members
ofmarkets
the
subsistence
sector.
Subsistence
cannot
rent
land
nordata
to
sets
for the
the
relationship
robust
for certain
investments,
such
as
fallow.
peasants
is:
transfer
noregion
tax
to peasants).
Therefore,
consumption
foryet
a in
member
of the
Lof
R from
ranging
from
thin the
credit
markets
toseems
empirical
difficulties
explain this,
an examination
multiple
sets
for the
relationship
robust
for certainhelp
investments,
such
as
fallow.
peasantsdata
is:
transfer
noregion
tax
revenues
to peasants).
Therefore,
consumption
foryet
a in
member
of the Lof
R
sets for the region the relationship seems robust for certain investments, such as fallow.
m
t
4
7 examines the effects of property rights on investment
A microeconomic
literature,
ciS = πiS
+ m (1too
− large
µ) r tto do it justice,
L
L
and productivity.
using
instrumental
variables7 strategy to address the endogeneity problem offer mixed
R an
ciS =Papers
π
+
(1
−
µ)
r
iS
7
L some positive
results. For example, BesleyLR
(1995) reports
in
m rights on investment
t
t of individual’s transfer
s effects
s
(1 −etτSal.) A
− t security
− x
(µ) ffind
(xis ,noei )effect
(1 − µ)Faso.
r t . However,
r + (1 −
i ) wE + in
m Burkina
Ghana, whereas =
Brasselle
(2002)
ofis tenure
oneinvestment
L r + (1 − ei ) wE + LR (1 − µ) r L .
= variation
(1 − τin
A (µ)
f (xiof, eproperty
i ) − xrights
S )the
i − induced
other studies using
security
by natural experiments
LR or policyLreforms find
L
positive effects of better property rights (e.g. Banerjee et al. (2002), Goldstein and Udry (2008), Hornbeck (2010),
Noticeetthat
peasants
payofout
any
net land
use
at the
rental that,
rate r,
and receive
Jacoby
al. (2002)).
In receive
a recent farm
surveyrevenue,
for the case
West
Africa,
Fenske
(2010)
concludes
empirically,
the
Notice
thatmore
peasants
receive
farm revenue,
pay out
any
net
land
use
at the
rental
rate r,
and receive
link
between
complete
land
rights
and
investment
has
been
found
to
be
weaker
than
expected.
Several
reasons
wage payments from landowners. These are the three components in πiS . The last term in ciS is
ranging
from thin credit
to empirical
this, yet in
in an
multiple
data
. The last of
term
in ciS
is
wage payments
from markets
landowners.
Thesedifficulties
are the help
threeexplain
components
πiSexamination
the for
share
− µ the
of land
rents expropriated
theinvestments,
m migrating
sets
the 1
region
relationship
seems robust forfrom
certain
suchhouseholds
as fallow. and shared by the LR
the share 1 − µ of land rents expropriated from the m migrating households and shared by the LR
non-migrating households.
non-migrating households.
7
in the rural areas, VR , and is thus crucial
The maximized value of ciS is the value of remaining
in the rural areas, VR , and is thus crucial
The maximized value of ciS is the value of remaining
9
in determining the migration decision.
in determining the migration decision.
Consumption
of non-migrating
peasants
is the
of farm
profits and wages (πiS ) and any
in poor
property rights
if vacant land
could also
be sum
grabbed
by them.
Consumption
of non-migrating
peasants
is the
sum
of farm
profits and wages (πiS ) and any
in
poor
property
rights
if
vacant
land
could
also
be
grabbed
by
them.
potential
land rents
expropriated from
migrating
any
Consumption
of non-migrating
peasants
is thehouseholds.
sum of farmUnlike
profitselite
andfarmers,
wages (πpeasant
iS ) and may
potential
land rents
expropriated from
migrating
households.
Unlike
elite
farmers,
peasant
may
)
and
any
Consumption
of
non-migrating
peasants
is
the
sum
of
farm
profits
and
wages
(π
iS
on farm revenue,
they receive
no redistribution
elite will
rationally
face positive
potential
landtaxes
rentsτSexpropriated
from and
migrating
households.
Unlike elite(the
farmers,
peasant
may
on farm revenue,
they receive
no redistribution
elite will
rationally
face positive
taxes
τSexpropriated
potential
rents
from and
migrating
households.
Unlike
elite(the
farmers,
peasant
may
is:
transfer
noland
tax
revenues
peasants).
for
a member
of the
R peasants
farm
revenue,Therefore,
and they consumption
receive no redistribution
(the
eliteLwill
rationally
face positive
taxes
τS onto
is:
transfer
no tax
revenues
peasants).
for a member
of the
R peasants
farm
revenue,Therefore,
and they consumption
receive no redistribution
(the
eliteLwill
rationally
face positive
taxes
τS onto
transfer no tax revenues m
to peasants).t Therefore, consumption for a member of the LR peasants is:
transfer no
to peasants).
ciStax=revenues
πiS + m
(1 − µ) r t Therefore, consumption for a member of the LR peasants is:
LmR (1 − µ) r L
ciS = π
+
iS
t
+ LR (1 − µ) r L
ciS = π
iS
m
ts
m
t
t
s
L
L
R
ciS = π(1
+
(1
−
µ)
r
iS − τS ) A (µ) f (xi , ei ) − xi − t r + (1 − ei ) wE + m (1 − µ) r t .
s
s
L
L
= (1 − τSR) A (µ) f (xsi , ei ) − xsi − L
t.
t r + (1 − ei ) wE + LmR (1 − µ) r L
= (1 − τS ) A (µ) f (xis , ei ) − xis − L
t.
t r + (1 − ei ) wE + LmR (1 − µ) r L
L r + (1 − ei ) wE + LR (1 − µ) r L .
=
(1
−
τ
,
e
)
−
x
−
)
A
(µ)
f
(x
i
S
i
i
Notice that peasants receive farm revenue, pay out any
and receive
LR rate r, L
L net land use at the rental
Notice that peasants receive farm revenue, pay out any net land use at the rental
rate r, and receive
The rate
last term
ciS is
wage payments
from receive
landowners.
These are
components
in the
πiS .rental
Notice
that peasants
farm revenue,
paythe
outthree
any net
land use at
r, andinreceive
The rate
last term
inreceive
ciS is
wage payments
from receive
landowners.
These are
the
three
components
in the
πiS .rental
Notice
that
peasants
farm
revenue,
pay
out
any
net
land
use
at
r,
and
the share
1 − µ of
land
rents expropriated
from
m migrating
households
and last
shared
byinthe
R
term
ciSLis
wage
payments
from
landowners.
These are
thethe
three
components
in πiS . The
the share
1 − µ of
land
rents expropriated
from
the
m migrating
households
and last
shared
byinthe
Lis
R
.
The
term
c
wage
payments
from
landowners.
These
are
the
three
components
in
π
iS
iS
non-migrating
the
share 1 − µhouseholds.
of land rents expropriated from the m migrating households and shared by the LR
non-migrating
households.
the The
sharemaximized
1 − µ of land
rents
from the m migrating households and shared by the LR
value
of cexpropriated
iS is the value of remaining in the rural areas, VR , and is thus crucial
non-migrating
households.
The maximized
value of ciS is the value of remaining in the rural areas, VR , and is thus crucial
non-migrating
households.
in determining
the migration
is the value of remaining in the rural areas, VR , and is thus crucial
The maximized
value of ciSdecision.
in determining
the migration
is the value of remaining in the rural areas, VR , and is thus crucial
The maximized
value of ciSdecision.
in determining the migration decision.
in determining
the migration
2.2
The urban
sector decision.
2.2 The urban sector
2.2
In
the The
urbanurban
sector, sector
workers are paid an exogenous wage wU . It is useful to think of this sector as
2.2
The
urban
In the urban sector, sector
workers are paid an exogenous wage wU . It is useful to think of this sector as
the
urban
or industrial
sector,are
but
it could
representwage
any additional
sectortothat
competes
with the
In the
urban
sector, workers
paid
an exogenous
wU . It is useful
think
of this sector
as
the
urban
or industrial
sector,are
but
it could
representwage
any additional
sector
that
competes
with the
In
the
urban
sector,
workers
paid
an
exogenous
w
.
It
is
useful
to
think
of
this
sector
as
U
landowner
forindustrial
labour. The
crucial
assumption
is thatany
peasants
mustsector
migrate
the U sector
the
urban or
sector,
but it
could represent
additional
thattocompetes
with and
the
landowner
forindustrial
labour. The
crucial
assumption
is thatany
peasants
mustsector
migrate
tocompetes
the U sector
and
the
urban
or
sector,
but
it
could
represent
additional
that
with
the
cannot
work
the agricultural
sector
simultaneously
a peasant
with
his entire
unitand
of
landowner
forinlabour.
The crucial
assumption
is that (i.e.,
peasants
must leaves
migrate
to the
U sector
cannot work
inlabour.
the agricultural
sector
simultaneously
(i.e.,
a peasant
leaves
with
his entire
unitand
of
landowner
for
The
crucial
assumption
is
that
peasants
must
migrate
to
the
U
sector
labour).work in the agricultural sector simultaneously (i.e., a peasant leaves with his entire unit of
cannot
labour).
cannot
the agricultural
simultaneously
(i.e.,Aa more
peasant
leavesformulation
with his entire
unitrecof
Thework
urbaninwage
is assumed sector
exogenous
for simplicity.
realistic
would
labour).
The
urban
wage
is
assumed
exogenous
for
simplicity.
A
more
realistic
formulation
would
reclabour).
ognize
urban
wages
fall withexogenous
rural-urban
5 I briefly
discuss thewould
effects
of
Thethat
urban
wage
is assumed
formigration.
simplicity. InAsection
more realistic
formulation
recognize
that
urban
wages
fall withexogenous
rural-urban
migration.
InAsection
5 I briefly
discuss thewould
effects
of
The
urban
wage
is
assumed
for
simplicity.
more
realistic
formulation
recextending
model
in this
The most
important
results 5inI the
model,
however,
do not
ognize thatthe
urban
wages
fall direction.
with rural-urban
migration.
In section
briefly
discuss
the effects
of
extending
the
model
in this
direction.
The most
important
results 5inI the
model,
however,
do not
ognize
that
urban
wages
fall
with
rural-urban
migration.
In
section
briefly
discuss
the
effects
of
depend
crucially
on
this
assumption.
extending the model in this direction. The most important results in the model, however, do not
depend
crucially
on
this
assumption.
extending
the model intogether
this direction.
The
most
the are
model,
do not
These
assumptions
with the
fact
thatimportant
a share µ results
of landinrents
lost however,
upon migration
depend
crucially
on this assumption.
These
assumptions
together
with the fact that a share µ of land rents are lost upon migration
depend
crucially
on this
assumption.
, is given
imply
that
the value
of together
going
to with
the urban
sector,
These
assumptions
the fact
that VaUshare
µ of by
land rents are lost upon migration
, is given
imply
thatassumptions
the value of together
going to with
the urban
sector,
These
the fact
that VaUshare
µ of by
land rents are lost upon migration
imply that the value of going to the urban sector, VU , tis given by
imply that the value of going to the urban
VUµ, tisr.given by
VU sector,
= wU +
(1)
VU = w U + µ L
(1)
t r.
VU = w U + µ L
(1)
t r.
VU = wU + µ L r.
(1)
L
2.3
The game
The government’s budget constraint completes the description of the environment. It is given by:
8
TE = τS A (µ)
(2)
8 f (t, LS ) .
8
8
I assume there exists an upper bound τ̄ on taxation, with τ̄ ≤ 1, for example because producers
can hide each dollar of income at a cost of τ̄ . I consider the following simple game:
1. A representative agent of the landowning elite chooses tax policies τS and a level of property
rights protection µ, with TE given by the government budget constraint.
2. Subsistence farmers compare the value of going to the urban sector (VU ) with the value of
staying in the rural areas (VR ), and decide whether or not to migrate to the city.
10 consumption. Non-migrating peasants choose
3. Producers in the rural areas maximize their
labour and land inputs in the subsistence sector (ei and xi ) to maximize consumption (ciS ).
can hide each dollar of income at a cost of τ̄ . I consider the following simple game:
1. A representative agent of the landowning elite chooses tax policies τS and a level of property
rights protection µ, with TE given by the government budget constraint.
2. Subsistence farmers compare the value of going to the urban sector (VU ) with the value of
staying in the rural areas (VR ), and decide whether or not to migrate to the city.
units of labour:
3. Producers in the rural areas maximize their consumption. Non-migrating peasants choose
τS ) subsistence
A (µ) f1 (t, Lsector
−m−
) =
r, maximize consumption (ciS
(4)
and
xi ) to
).
labour and land inputs(1in−the
(eL
i E
consumption
Labour
markets are competitive
Landowners hire labour(1(L
E ). w
) Amaximize
(µ) f2 (t, L
− m − LE ) (c=
(5)
−Eτ)Sto
E.
and all agents take the wage rate (wE ) as given.
For a given m, (3)-(5) determine the equilibrium rural wage rate (wE ) and the allocation of
Stages
2 between
and 3 determine
theand
economic
equilibrium
ofE the
for a precisely,
given set given
of policies.
andmodel,
LS ). More
m as
rural
labour
landowner
subsistence
farms (L
This
is
the
focus
of
Section
3.
The
incentives
of
the
elite
to
alter
this
economic
equilibrium
via
determined in the second stage, LE (m) will satisfy:
their choice of policy in stage 1 gives us the political equilibrium, which is analyzed in Section 4.
F2 (T − t, LE (m)) = (1 − τS ) A (µ) f2 (t, L − m − LE (m)) ≡ w (m) .
3
(6)
Economic Equilibrium
where the last term defines the resulting equilibrium rural wage, a monotonic and increasing func5.
tion
of migrationthe
To characterize
economic equilibrium, consider the landowners’ problem in the third stage.
To
complete
the
of the(Leconomic
equilibrium, only the level of migration remains
They choose optimaldescription
labor demand
E ) to maximize consumption (cE ). At this stage, TE is
, staying
unestablished.
In the
the landowners.
second stage,That
peasants
continue act
to migrate
as politically
long as VUin >theVRfirst
taken as given by
is, landowners
as a team
stage
thestage.
optimal
of ciS .condition
This canfor
bethis
written
using
in
ruralgame,
areasbut
otherwise.
Recall
R islast
of the
atomistically
in Vthe
Thevalue
first-order
problem
is the
the
homogeneity
of degree zero of f and competitive markets (equations (4) and (5)) as the sum of
standard condition
labour and land rents:
Each of the LR
LE ) = w E .
(3)
F2 (T − t,
t
m
(1 − µ) .
(7)
VR = w E + r 1 +
LR land (xs ) and labour (ei ) inputs in the
non-migrating peasants, inLturn, choose
i
taking migration
as given. The
subsistence
to components
maximize consumption
In
(7), theresector
are two
of rural land(crent
rents fromand
the policies
initial endowment
and
iS ), income:
optimal
must
satisfy the
usual pair of
equality
each
land
leftchoice
behind
by migrant
households.
Offirst-order
course, ifconditions
either no specifying
one migrates
(m =between
0) , or there
factor’s
marginal
productivity
its price
for all i ∈(µR.=These
conditions
can be written
as those
are
perfect
property
rights for and
migrating
households
1), this
second component
of land
rents
of a representative subsistence producer with access to t units of land, hiring LS = L − m − LE
vanishes.
units
of labour:
Starting
with a situation with VU > VR , migration will continue until VU = VR , or
t
(1 − τS ) w
AU(µ)
−−
mµ)
− LE )r. = r,
(4)
− fw1E(t,=L(1
(8)
LR
(5)
(1 − τS ) A (µ) f2 (t, L − m − LE ) = wE .
9
In words, when there is positive migration the wage gain from going to the city wU − wE , must
equate
loss in
rents
from migration.
This lossrural
arises
duerate
to imperfect
rights in
For the
a given
m,land
(3)-(5)
determine
the equilibrium
wage
(wE ) andproperty
the allocation
of
the
that
migrating
households
not get the
full(Lvalue
ofLtheir
land’sprecisely,
rent. Clearly,
with
given m
as
ruralsense
labour
between
landowner
and do
subsistence
farms
E and
S ). More
µ
= 1 there in
is no
loss;stage,
the no-migration
condition simplifies to wU = wE .
determined
thesuch
second
LE (m) will satisfy:
Of course, it is possible that VU < VR at m = 0. In this case, there are no incentives to migrate.
F2 (T −
t, L
(1 − τS )can
A (µ)
(t, L − m −in
LEcomplementary-slackness
(m)) ≡ w (m) .
(6)
E (m)) =decision
In general, therefore,
the
migration
bef2summarized
form:
where the last term defines the
resulting
equilibrium rural wage, a monotonic and increasing func(9)
m (V
R − VU ) = 0, m ≥ 0, VR − VU ≥ 0.
5
tion of migration .
ThisTocompletes
description
of economic
the economic
equilibrium,
I define
as follows.remains
completethe
thebasic
description
of the
equilibrium,
onlywhich
the level
of migration
5
unestablished.
In≡the
peasants
continue
to migrate as long as VU > VR , staying
Similarly, r (m)
(1 −second
τS ) A (µ)stage,
f1 (t, L −
m − LE (m))
.
in rural areas otherwise. Recall VR is the optimal value of ciS . This can be written using the
10 markets (equations (4) and (5)) as the sum of
homogeneity of degree zero of f and competitive
labour and land rents:
VR = w E +
t
11
r 1+
m
(1 − µ) .
(7)
determined in the second stage, LE (m) will satisfy:
determined in the
second
L= (m)
F2 (T
− t, Lstage,
(1 −will
τS ) satisfy:
A (µ) f2 (t, L − m − LE (m)) ≡ w (m) .
(6)
E (m)) E
F2 (T − t, LE (m)) = (1 − τS ) A (µ) f2 (t, L − m − LE (m)) ≡ w (m) .
(6)
F2 (T − t, LE (m)) = (1 − τS ) A (µ) f2 (t, L − m − LE (m)) ≡ w (m) .
(6)
F2 (Tdefines
− t, LEthe
(m))
= (1 − equilibrium
τS ) A (µ) f2 (t,
L −wage,
m−L
(m)) ≡ w and
(m) .increasing func(6)
where the last term
resulting
rural
a Emonotonic
where the last term
defines
the
resulting
equilibrium
rural
wage,
a
monotonic
and
increasing
func5.
tion
ofthe
migration
where
last term
5 . defines the resulting equilibrium rural wage, a monotonic and increasing function
of
migration
where the last term
defines the resulting equilibrium rural wage, a monotonic and increasing funcTo
complete
the
tion of migration55 . description of the economic equilibrium, only the level of migration remains
To
complete
the
tion of migration . description of the economic equilibrium, only the level of migration remains
staying
unestablished.
second stage,
continue
to migrate
as long
U > VR , remains
To completeIn
thethe
description
of thepeasants
economic
equilibrium,
only the
level as
of V
migration
staying
unestablished.
second stage,
continue
to migrate
as long
To completeIn
thethe
description
of thepeasants
economic
equilibrium,
only the
level as
of V
migration
U > VR , remains
the optimal
value
ciS . This
can as
be Vwritten
the
in rural areas otherwise.
Recall
VR is
, staying
unestablished.
In the second
stage,
peasants
continue
to of
migrate
as long
U > VRusing
the optimal
value
ciS . This
can as
be Vwritten
the
in rural areas otherwise.
Recall
VR is
, staying
unestablished.
In the second
stage,
peasants
continue
to of
migrate
as long
U > VRusing
homogeneity
degree zeroRecall
of f and
(equations
and
as the
sumthe
of
the optimalmarkets
value of
ciS . This(4)
can
be(5))
written
using
in rural areasofotherwise.
VR iscompetitive
homogeneity
degree zeroRecall
of f and
(equations
and
as the
sumthe
of
the optimalmarkets
value of
ciS . This(4)
can
be(5))
written
using
in rural areasofotherwise.
VR iscompetitive
labour and land
rents: zero of f and competitive
markets (equations
homogeneity
of degree
(4) and (5)) as the sum of
m
t markets
labour and land
rents: zero of f and competitive
homogeneity
of degree
(equations
(4) and (5)) as the sum of
(7)
VR = wE + t r 1 + m (1 − µ) .
labour and land rents:
(7)
VR = w E + L
labour and land rents:
t r 1 + LmR (1 − µ) .
(7)
VR = w E + L
t r 1 + LmR (1 − µ) .
L r rent
LR (1 −rents
µ) .from the initial endowment and
(7)
wE +land
1 +income:
VRof=rural
In (7), there are two components
L rent income:
LR
In (7), there are two components of rural land
rents from the initial endowment and
land
left
behind
by migrant
households.
Of course,
if either
no one
(mendowment
= 0) , or there
In
(7),
there
are two
components
of rural land
rent income:
rents
frommigrates
the initial
and
land
left
behind
by migrant
households.
Of course,
if either
no one
(mendowment
= 0) , or there
In
(7),
there
are two
components
of rural land
rent income:
rents
frommigrates
the initial
and
are perfect
property
rights forhouseholds.
migrating households
1), this
second
component
rents
land
left behind
by migrant
Of course, (µ
if =
either
no one
migrates
(m = of
0)land
, or there
are perfect
property
rights forhouseholds.
migrating households
1), this
second
component
rents
land
left behind
by migrant
Of course, (µ
if =
either
no one
migrates
(m = of
0)land
, or there
vanishes.
are
perfect property rights for migrating households (µ = 1), this second component of land rents
vanishes.
are
perfect property rights for migrating households (µ = 1), this second component of land rents
Starting with a situation with VU > VR , migration will continue until VU = VR , or
vanishes.
Starting with a situation with VU > VR , migration will continue until VU = VR , or
vanishes.
Starting with a situation with VU > VR , migration willt continue until VU = VR , or
V , migration will continue until VU = VR , or
Starting with a situation with VUw>
(8)
U −RwE = (1 − µ) t r.
wU − wE = (1 − µ) LtR r.
(8)
wU − wE = (1 − µ) LtR r.
(8)
LRfrom
wU − wthe
(1 − µ)
r. going to the city w − w , must
(8)
E =wage
In words, when there is positive migration
gain
U
E
L
In words, when there is positive migration the wage gainRfrom going to the city wU − wE , must
equate
thewhen
loss in
landisrents
frommigration
migration.
arises
to imperfect
property
in
In words,
there
positive
theThis
wageloss
gain
fromdue
going
to the city
wU − wrights
E , must
equate
thewhen
loss in
landisrents
frommigration
migration.
arises
to imperfect
property
in
In words,
there
positive
theThis
wageloss
gain
fromdue
going
to the city
wU − wrights
E , must
the
sense
households
do not get
theloss
fullarises
valuedue
of their
land’s rent.
Clearly,
with
equate
thethat
loss migrating
in land rents
from migration.
This
to imperfect
property
rights
in
the sense
households
do not get
theloss
fullarises
valuedue
of their
land’s rent.
Clearly,
with
equate
thethat
loss migrating
in land rents
from migration.
This
to imperfect
property
rights
in
=
w
.
µ
=
1
there
is
no
such
loss;
the
no-migration
condition
simplifies
to
w
U land’s
E rent. Clearly, with
the sense that migrating households do not get the full value of their
wE . rent. Clearly, with
µ = sense
1 there
is no
such loss;households
the no-migration
condition
simplifies
wU =
the
that
migrating
do not get
the full
value oftotheir
land’s
= 0. In this
case, there
to migrate.
course,
possible
VU < VR at mcondition
=no
wEincentives
.
µ =Of
1 there
is it
noissuch
loss; that
the no-migration
simplifies
to wUare
= 0. In this
case, there
to migrate.
course,
possible
VU < VR at mcondition
=no
wEincentives
.
µ =Of
1 there
is it
noissuch
loss; that
the no-migration
simplifies
to wUare
In general,
therefore,
the migration
decision
can
summarized
in complementary-slackness
form:
Of course,
it is possible
that VU <
VR at m
= be
0. In
this case, there
are no incentives to migrate.
In general,
therefore,
the migration
decision
can
summarized
in complementary-slackness
form:
Of course,
it is possible
that VU <
VR at m
= be
0. In
this case, there
are no incentives to migrate.
In general, therefore, the migration decision can be summarized in complementary-slackness form:
In general, therefore, the migration
decision
form:
VU ) = can
0, mbe≥summarized
0, VR − VU in
≥ complementary-slackness
0.
(9)
m (VR −
(9)
m (VR − VU ) = 0, m ≥ 0, VR − VU ≥ 0.
(9)
m (VR − VU ) = 0, m ≥ 0, VR − VU ≥ 0.
) =economic
0, m ≥ 0,equilibrium,
VR − VU ≥which
0.
(9)
m (VR −ofVUthe
This completes the basic description
I define as follows.
This completes the basic description of the economic equilibrium, which I define as follows.
5 completes the basic description of the economic equilibrium, which I define as follows.
This
Similarly, r (m) ≡ (1 − τS ) A (µ) f1 (t, L − m − LE (m)) .
5 completes the basic description of the economic equilibrium, which I define as follows.
This
Similarly, r (m) ≡ (1 − τS ) A (µ) f1 (t, L − m − LE (m)) .
5
Similarly,
5
r (m) ≡ (1 − τS ) A (µ) f1 (t, L − m − LE (m)) .
Similarly, r (m) ≡ (1 − τS ) A (µ) f1 (t, L − m − LE (m))
10 .
10
10
10
12
Figure 1: Economic Equilibrium
Figure
Figure 1:
1: Economic
Economic Equilibrium
Equilibrium
Figure 1. Economic Equilibrium
F
Figure
igure 1.
1. Economic
Economic Equilibrium
Equilibrium
Panel A
Panel B
Panel
A
Panel
B
Panel A
Panel
Economic Equilibrium
without migration
Economic Equilibrium
withBpositive migration
Economic
Equilibrium
without
migration
Economic
Equilibrium
with
Economic Equilibrium
without migration
wU < wE+(1-µ)(t/L)r
Economic Equilibrium
with positive
positive migration
migration
wU > wE+(1-µ)(t/L)r
wE+(1-µ)(t/L)r
wU <
w
>w
wE+(1-µ)(t/L)r
+(1-µ)(t/L)r
w
U < wE+(1-µ)(t/L)r
wU >
U
(1-τ)A(µ)f2(t,L S )
(1-τ)A(µ)f
(1-τ)A(µ)f22(t,L
(t,L SS ))
AEF2(T-t,LE)
A
AEEF
F22(T-t,L
(T-t,LEE))
AEF2(T-t,LE)
A
AEEF
F22(T-t,L
(T-t,LEE))
(1-τ)A(µ)f2(t,LS )
(1-τ)A(µ)f
(1-τ)A(µ)f22(t,L
(t,LSS ))
wU
w
wUU
wE+(1-µ)(t/L)r
w
wEE+(1-µ)(t/L)r
+(1-µ)(t/L)r
(1-µ)(t/LR)r
(1-µ)(t/L
(1-µ)(t/LRR)r
)r
wE
w
wEE
wE
w
wEE
LE
L
LEE
E
LS
L
LSS
LR = L
L
LRR =
=L
L
LE
LEE
L
!
!
!
LR
L
LRR L
L
L
LS
L
LSS
m
m
m
!
!
!
Definition 1 (Economic Equilibrium) The economic equilibrium is given by a tuple {meq
, Leq
eq
eq
E ,,
eq
Definition
1
(Economic
Equilibrium)
The
economic
equilibrium
is
given
by
a
tuple
{m
E,
Definition
1 (Economic Equilibrium) The economic equilibrium is given by a tuple {m ,, L
Leq
eq
eq
E
, wE
such that:
req
eq
eq }
}
such
that:
rreq ,, w
wE } such that:
E
1. Taking wE , r and m as given, landowners choose LE to maximize their consumption cE and
, r and m as given, landowners choose LE to
to maximize
maximize their
their consumption
consumption ccE
and
1. Taking
Taking w
1.
wE
E , r and m as given, landowners choose LE
E and
each non-migrating peasant i ∈ R chooses ei and xSiSS to maximize his consumption ciS . In
. In
each
ii ∈
eq eq peasant
and x
xii to
to maximize
maximize his
his consumption
consumption cciS
each non-migrating
non-migrating
∈ R
R chooses
chooses eeii and
iS . In
eq satisfy
Leq , req ,peasant
w
(3)-(5),
and
particular, eq
E
E
eq
eq
particular,
wE satisfy
satisfy (3)-(5),
(3)-(5), and
and
particular, L
LE ,, rreq ,, w
E
E
2. Migration (meq
eq ) satisfies (9).
2.
satisfies (9).
(9).
2. Migration
Migration (m
(meq )) satisfies
Figure 1 illustrates the economic equilibrium. In Panel A, even at m = 0 the resulting wage
Figure
Figure 11 illustrates
illustrates the
the economic
economic equilibrium.
equilibrium. In
In Panel
Panel A,
A, even
even at
at m
m=
= 00 the
the resulting
resulting wage
wage
wE , which equates the marginal product of labour in the capitalist and subsistence subsectors, is
, which equates the marginal product of labour in the capitalist and subsistence subsectors, is
wE
w
E , which equates the marginal product of labour in the capitalist and subsistence subsectors, is
sufficient to avoid migration. The urban wage is not large enough to compensate for the wage
sufficient
sufficient to
to avoid
avoid migration.
migration. The
The urban
urban wage
wage is
is not
not large
large enough
enough to
to compensate
compensate for
for the
the wage
wage
and relative land-rent benefit of the rural areas. Accordingly, in Panel A, wU is smaller than
is
smaller
and
relative
land-rent
benefit
of
the
rural
areas.
Accordingly,
in
Panel
A,
w
U
than
and relative land-rent benefit of the rural areas. Accordingly, in Panel A, wU is smaller than
wE + (1 − µ) Lttt r when m = 0. However, if wU rises above this level, as in the case depicted in Panel
+
(1
−
µ)
r
when
m
=
0.
However,
if
w
rises
above
this
level,
as
in
the
case
depicted
in
Panel
w
E
U
when m = 0. However, if wU rises above this level, as in the case tdepicted in Panel
wE + (1 − µ) L
L r incentives
B, there will be
to migrate that only cease when wU − wE = (1 − µ) LttR r.
− wE =
r.
B,
there
will
be
incentives
= (1
(1 −
− µ)
µ) L
r.
B, there will be incentives to
to migrate
migrate that
that only
only cease
cease when
when w
wU
U − wE
LR
R
Thus far, I largely ignored functional form assumptions. Given the Cobb-Douglas
assumption
Thus
far,
I
largely
ignored
functional
form
assumptions.
Given
the
Cobb-Douglas
Thus far, I largely ignored functional form assumptions. Given the Cobb-Douglas assumption
assumption
for both subsectors, the only difference in technology results from the parameters AE and A (µ).
and A (µ).
for
both
subsectors,
the
only
difference
in
technology
results
from
the
parameters
A
for both subsectors, the only difference in technology results from the parameters AE
E and A (µ).
It is also useful to define the following “distortion adjusted” measure of the land endowment in
It
It is
is also
also useful
useful to
to define
define the
the following
following “distortion
“distortion adjusted”
adjusted” measure
measure of
of the
the land
land endowment
endowment in
in
1
society: T̃ ≡ t [(1 − τS ) µ] 1−α + (T − t). Absent11any policy distortion (when µ = 1 and τ = 0),
11
T̃ = T . Much of the following analysis focuses on11elite’s incentives to reduce µ or increase τ , which
effectively reduce T̃ below T . Along these lines, I define the “distortion-adjusted” share of land in
the capitalist sector as γE =
T −t
,
T̃
and similarly, for the subsistence sector, γS = 1 − γE . Then, the
13
equations that satisfy the economic equilibrium indicate that the subsistence and capitalist sectors
absorb a share of rural labour proportional to the size of their (distortion-adjusted) landholdings:
1
society: T̃ ≡ t [(1 − τS ) µ] 1−α
+ (T − t). Absent any policy distortion (when µ = 1 and τ = 0),
1
society: T̃ ≡ t [(1 − τS ) µ] 1−α + (T − t). Absent any policy distortion (when µ = 1 and τ = 0),
T̃ = T . Much of the following analysis focuses on elite’s incentives to reduce µ or increase τ , which
T̃ = T . Much of the following analysis focuses on elite’s incentives to reduce µ or increase τ , which
effectively reduce T̃ below T . Along these lines, I define the “distortion-adjusted” share of land in
effectively reduce T̃ below T . TAlong
these lines, I define the “distortion-adjusted” share of land in
, and similarly, for the subsistence sector, γS = 1 − γE . Then, the
the capitalist sector as γE = TT̃−t
−t
the capitalist sector as γE = T̃ , and similarly, for the subsistence sector, γS = 1 − γE . Then, the
equations that satisfy the economic equilibrium indicate that the subsistence and capitalist sectors
equations that satisfy the economic equilibrium indicate that the subsistence and capitalist sectors
absorb a share of rural labour proportional to the size of their (distortion-adjusted) landholdings:
absorb a share of rural labour proportional to the size of their (distortion-adjusted) landholdings:
LE = γE LR and LS = γS LR . Factor prices, in turn, are given by:
LE = γE LR and LS = γS LR . Factor prices, in turn, are given by:
α
1−α
1
LR /T̃ α and wE = T̃ /LR 1−α .
r = [(1 − α) /α] [(1 − τS ) µ] 1−α
1
and wE = T̃ /LR
.
r = [(1 − α) /α] [(1 − τS ) µ] 1−α LR /T̃
As for migration, (9) implies that
As for migration, (9) implies that
1−α T̃ 1−α 1−α m = 0 if wU < T̃
1 + (1 − µ) 1 − α γS ≡ w̄ (τS , µ) .
m = 0 if wU < L
1 + (1 − µ) α γS ≡ w̄ (τS , µ) .
α
L
Otherwise, m satisfies
Otherwise, m satisfies
(10)
(10)
1−α 1−α T̃ 1−α wU =
1 + (1 − µ) 1 − α γS .
(11)
T̃
wU = L − m
1 + (1 − µ) α γS .
(11)
α
L−m
The right hand side of (11) is the wage in rural areas plus an extra term capturing the relative
The right hand side of (11) is the wage in rural areas plus an extra term capturing the relative
advantage of land rents a peasant enjoys if he decides to stay in the rural areas rather than migrate.
advantage of land rents a peasant enjoys if he decides to stay in the rural areas rather than migrate.
Similarly, the function w̄ (τS , µ) , defined in the right hand side of (10), is the rural wage plus the
Similarly, the function w̄ (τS , µ) , defined in the right hand side of (10), is the rural wage plus the
relative land rents advantage of rural areas when m = 0. It crucially determines whether or not
relative land rents advantage of rural areas when m = 0. It crucially determines whether or not
there will be migration in equilibrium. This function is decreasing in τS , whereas the impact of
there will be migration in equilibrium. This function is decreasing in τS , whereas the impact of
property rights is more subtle. I summarize the features of w̄ (τS , µ) in the following remark.
property rights is more subtle. I summarize the features of w̄ (τS , µ) in the following remark.
defined in (10).
Remark 1 Consider the function w̄ : [0, τ̄ ] × µ, 1 → R+
Remark 1 Consider the function w̄ : [0, τ̄ ] × µ, 1 → R+ defined in (10).
1. w̄ (τS , µ) achieves a global maximum at (0, µ∗∗ ) , where
1. w̄ (τS , µ) achieves a global maximum at (0, µ ) , where
µ∗∗ = 1 if α ∈ [1/2, 1).
µ = 1 if α ∈ [1/2, 1).
µ∗∗ < 1 otherwise. Moreover, w̄ (τS , µ) is increasing for µ ∈ [µ, µ∗∗ ) and decreasing for
µ < 1∗ otherwise. Moreover, w̄ (τS , µ) is increasing for µ ∈ [µ, µ ) and decreasing for
µ ∈ (µ∗ , 1]
µ ∈ (µ , 1]
1−α 1−α
≈
w̄
τ
,
µ
for small µ.
2. w̄ (τS , 1) = T̃T̃L 1−α > TTL−t
S
1−α
> L−t
≈ w̄ τS , µ for small µ.
2. w̄ (τS , 1) = L
(a)
(a)
(b)
(b)
Proof. See Section A.1.
Proof. See Section A.1.
The second part is straightforward. Consider the first part. It should be clear that ∂ w̄/∂τS < 0,
The second part is straightforward. Consider the first part. It should be clear that ∂ w̄/∂τS < 0,
so an increase in taxation makes a migration threat more likely. Indeed,
in τ reduces
an increase
1−α in τSS reduces
so an increase in taxation makes a migration threat more likely. Indeed,
an
increase
two terms in w̄. First, the rural equilibrium wage wE at zero migration T̃ /L1−α , and second,
, and second,
T̃ /L
two terms in w̄. First, the rural equilibrium wage wE at zero migration
the effective share of land in the subsistence sector (γS ). In other words, given more rural taxation,
12
peasants earn less from both land and labour, so12they are more willing to migrate.
Property rights have a more intricate effect. A decrease in the degree of property rights’
enforcement in the subsistence sector has two countervailing effects: (i) by reducing the productivity
of the subsistence sector, it reduces the relative value of the rural areas in a similar way as taxation
14
effect encourages migration, a lower µ
does (by reducing wE and γS ); (ii) while this productivity
also has a security effect as captured by (1 − µ) in the expression. This second effect encourages
the effective share of land in the subsistence sector (γS ). In other words, given more rural taxation,
the effective share of land in the subsistence sector (γS ). In other words, given more rural taxation,
peasants
earnshare
less of
from
both
land
and labour,
so they
migrate.
the
effective
land
in the
subsistence
sector
(γS ).are
Inmore
otherwilling
words, to
given
more rural taxation,
peasants earn less from both land and labour, so they are more willing to migrate.
Property
haveboth
a more
effect.
A are
decrease
the degree
of property rights’
peasants
earnrights
less from
land intricate
and labour,
so they
more in
willing
to migrate.
Property rights have a more intricate effect. A decrease in the degree of property rights’
enforcement
the subsistence
sector
has twoeffect.
countervailing
effects:
reducing
productivity
Property inrights
have a more
intricate
A decrease
in (i)
thebydegree
of the
property
rights’
enforcement in the subsistence sector has two countervailing effects: (i) by reducing the productivity
of
the
subsistence
sector,
it
reduces
the
relative
value
of
the
rural
areas
in
a
similar
way
as
taxation
enforcement in the subsistence sector has two countervailing effects: (i) by reducing the productivity
of the subsistence sector, it reduces the relative value of the rural areas in a similar way as taxation
while
this productivity
encourages
migration,
lower µ
does
reducing sector,
wE and
S ); (ii) the
of
the(by
subsistence
it γ
reduces
relative
value of the effect
rural areas
in a similar
way asataxation
does (by reducing wE and γS ); (ii) while this productivity effect encourages migration, a lower µ
also has
security weffect
asγcaptured
by (1
− µ)
in the expression.
This second
effect encourages
this
productivity
effect encourages
migration,
a lower µ
does
(by areducing
E and
S ); (ii) while
also has a security effect as captured by (1 − µ) in the expression. This second effect encourages
peasants
remain effect
in theascountryside
to (1
protect
land
which would
be (partially)
lost upon
also
has atosecurity
captured by
− µ) in
therents,
expression.
This second
effect encourages
peasants to remain in the countryside to protect land rents, which would be (partially) lost upon
migrationtotoremain
the cities.
peasants
in the countryside to protect land rents, which would be (partially) lost upon
migration to the cities.
Now, recall
α is the coefficient of labour in the Cobb-Douglas production function. Thus,
migration
to thethat
cities.
Now, recall that α is the coefficient of labour in the Cobb-Douglas production function. Thus,
when
α ≥recall
1/2, income
from
rents isofrelatively
compared
to wage function.
income. ThereNow,
that α is
theland
coefficient
labour inunimportant
the Cobb-Douglas
production
Thus,
when α ≥ 1/2, income from land rents is relatively unimportant compared to wage income. Therefore,
and
increaseunimportant
in µ improves
the relative
value
of ruralThereareas
whenthe
α ≥productivity
1/2, incomeeffect
from prevails
land rents
is an
relatively
compared
to wage
income.
fore, the productivity effect prevails and an increase in µ improves the relative value of rural areas
and
if land
rents
are important
enoughin(ifµ αimproves
< 1/2), the
withrelative
high µvalue
the security
fore, w̄.
theHowever,
productivity
effect
prevails
and an increase
of rural effect
areas
and w̄. However, if land rents are important enough (if α < 1/2), with high µ the security effect
prevails
and
the
value
of
µ
that
maximizes
w̄
is
less
than
1.
and w̄. However, if land rents are important enough (if α < 1/2), with high µ the security effect
prevails and the value of µ that maximizes w̄ is less than 1.
This and
remark
is useful
establishing
following
prevails
the value
of µinthat
maximizesthe
w̄ is
less thanthree
1. regimes that arise regardless of the
This remark is useful in establishing the following three regimes that arise regardless of the
value
of α.
This
remark is useful in establishing the following three regimes that arise regardless of the
value of α.
value of α.
1. No migration regime wU < w̄ τ̄ , µ. If the urban wage is lower than w̄ τ̄ , µ, the global
1. No migration regime wU < w̄ τ̄ , µ. If the urban wage is lower than w̄ τ̄ , µ, the global
willτ̄ , be
equilibrium
of w̄regime
(τS , µ), wthere
µ no
. Ifmigration
the urbaninwage
is lower regardless
than w̄ τ̄ ,of
µ ,the
thepolicies
global
1. minimum
No migration
U < w̄
minimum of w̄ (τS , µ), there will be no migration in equilibrium regardless of the policies
=SL.
adopted,
R (τ
, µ), there will be no migration in equilibrium regardless of the policies
minimumsoofLw̄
adopted, so LR = L.
adopted, so LR = L.
2. Avoidable migration
regime wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗∗ ). If the urban wage is at an interme2. Avoidable migration regime wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗ ). If the urban wage is at an intermelevel,migration
the elite can
avoidwmigration
policies.
µ , w̄the
If the urbanofwage
is at an interme(0, right
µ ) .combination
2. diate
Avoidable
regime
U ∈ w̄ τ̄ ,with
diate level, the elite can avoid migration with the right combination of policies.
diate level, the elite can avoid migration with the right combination of policies.
3. Unavoidable migration regime (wU > w̄ (0, µ∗∗ )) . With high wages, not even zero rural taxation
3. Unavoidable migration regime (wU ∗> w̄ (0, µ∗ )) . With high wages, not even zero rural taxation
) that
(τS ,wages,
µ) cannot
forestall
migration.
the levelmigration
of property
rights
w̄ (0,maximizes
µ )) . Withw̄high
even zero
rural taxation
3. and
Unavoidable
regime
(w(µ
U >
and the level of property rights (µ∗∗ ) that maximizes w̄ (τS , µ) can forestall migration.
and the level of property rights (µ ) that maximizes w̄ (τS , µ) can forestall migration.
Figure 2 depicts the functions w̄ (τ̄ , µ) and w̄ (0, µ). It also shows the regions for wU in which
Figure 2 depicts the functions w̄ (τ̄ , µ) and w̄ (0, µ). It also shows the regions for wU in which
the Figure
economy
finds itself
each regime.
The
avoidable
regime
a transitional
in
2 depicts
the in
functions
w̄ (τ̄ , µ)
and
w̄ (0, µ).migration
It also shows
theis regions
for wU regime
in which
the economy finds itself in each regime. The avoidable migration regime is a transitional regime in
which
policiesfinds
gradually
converge
from those
prevailingmigration
of the no regime
migration
to those
of the
the
economy
itself in
each regime.
The avoidable
is a regime
transitional
regime
in
which policies gradually converge from those prevailing of the no migration regime to those of the
unavoidable
migration
Forfrom
this those
reason,
and to reduce
number ofregime
cases to
analyzed,
which policies
graduallyregime.
converge
prevailing
of the the
no migration
to be
those
of the
unavoidable migration regime. For this reason, and to reduce the number of cases to be analyzed,
Iunavoidable
relegate themigration
analysis of
the
political
equilibrium
in
the
unavoidable
migration
case
to
Appendix
regime. For this reason, and to reduce the number of cases to be analyzed,
I relegate the analysis of the political equilibrium in the unavoidable migration case to Appendix
B.
Also,
I
focus
throughout
the intuition
of theinresults
in the mainmigration
text, and case
present
algebraic
I relegate the analysis of theon
political
equilibrium
the unavoidable
to Appendix
B. Also, I focus throughout on the intuition of the results in the main text, and present algebraic
details
A.2-A.4. on the intuition of the results in the main text, and present algebraic
B. Also,inI sections
focus throughout
details in sections A.2-A.4.
details in sections A.2-A.4.
4
4
4
Political Equilibrium
Political Equilibrium
Political Equilibrium
The political equilibrium is defined as the level of property rights and taxation on the subsistence
The political equilibrium is defined as the level of property rights and taxation on the subsistence
sector
that maximizes
elites’
consumption:
The
political
equilibrium
is defined
as the level of property rights and taxation on the subsistence
sector that maximizes elites’ consumption:
sector that maximizes elites’ consumption:
13
13
13
15
Figure 2: Three Regimes
Figure 2. Three Migration Regimes
Case α < 1/2
Case α ≥ 1/2
wU
!
Unavoidable
migration
!
wU
Unavoidable
migration
!
Avoidable
migration
0
No
migration
µ
1
µ*
Avoidable
migration
!
!
0
µ*=1
No
migration
µ
Definition 2 (Political Equilibrium) A political equilibrium is defined as a tuple {τSP OL , µP OL ,
TEP OL } such that
eq eq
P OL
τSP OL , µP OL ∈ arg max F T − t, Leq
E − wE L E + TE
τS ,µ
where TEP OL satisfies (2), and migration, labour allocation, land rents, and wages, are given by
eq eq
eq in Definition 1.
m , LE , req , wE
The elite’s problem in the previous definition can be written more explicitly by using the
functional form assumptions and substituting our previous findings, namely: LE = γE LR , LS =
1−α
γS LR , and wE = T̃ /LR
:
1
1
α
1−α
α 1−α
(γE LR ) (T − t)
µ (γS LR ) t
+ τS
,
max (1 − α)
τ,µ
α
α
with LR given by:
LR = min L, LIR ,
(12)
(13)
where I is for “interior” and LIR is found by solving for L − m in (11):
LIR
1
= T̃
wU
1−α
γS
1 + (1 − µ)
α
1
1−α
.
(14)
The previous discussion showed the conflicting effects on elite’s welfare of limited property rights
14
in peasant plots. To gain intuition and highlight these conflicting effects, I analyze problem (12),
as in Acemoglu (2006), with two separate problems: (i) the Factor Price Manipulation (henceforth
FPM) problem, which arises when the elite has no tax revenue-generating motive and maximizes
16
only the first term in (12); (ii) the Revenue Extraction (henceforth RE) problem, which focuses
squarely on this latter motive, the maximization of the second term in (12). I discuss each case,
The previous discussion showed the conflicting effects on elite’s welfare of limited property rights
in peasant plots. To gain intuition and highlight these conflicting effects, I analyze problem (12),
as in Acemoglu (2006), with two separate problems: (i) the Factor Price Manipulation (henceforth
FPM) problem, which arises when the elite has no tax revenue-generating motive and maximizes
only the first term in (12); (ii) the Revenue Extraction (henceforth RE) problem, which focuses
squarely on this latter motive, the maximization of the second term in (12). I discuss each case,
emphasizing the conditions under which a dual rural economy arises, or those in which µ < 1 and
the subsistence sector has inferior economic institutions.
4.1
Factor Price Manipulation
Consider first the pure FPM problem that arises when maximizing only the first term in (12):
max (1 − α)
τ,µ
1
(γE LR )α (T − t)1−α .
α
(15)
Ignoring constant terms, and substituting γE , this expression underlines the fact that under purely
FPM objectives, landowners
choose
tax and property rights to maximize the ratio of labour to
distortion-adjusted land LR /T̃ to minimize the equilibrium rural wage.
The main features of the solution are as follows. First, FPM incentives compel the elite to
impose maximal distortions (high levels of taxation and low property rights) when there is no
threat of migration. Second, when wages increase, checks are imposed on these distortions. In the
case of taxation, any effort to reduce the peasants’ welfare in the subsistence sector is eventually
self-defeated by their freedom to move to an alternative sector. But while taxation is reduced to
a minimum, the level of property rights protection is not raised to its maximum level, even with a
very high urban wage. At the root of this result is that part of peasants’ land rents would be lost
upon migration under poor property rights. The following proposition summarizes these and other
features of the solution:
Proposition 1 (Summary of FPM policies) Suppose the elite maximizes the first term in
(12). Then, with w̄ (τ, µ) as defined in (10) and µ∗ from Remark 1, the unique political equilibrium
features the following level of taxation τSF P M and property rights µF P M :
1. (No migration) If wU < w̄ τ̄ , µ , then τSF P M = τ̄ and µF P M = µ.
2. (Unavoidable migration) If wU > w̄ (0, µ∗ ) , then τSF P M = 0 and µF P M ∈ (0, 1/ (2 − α)).
Moreover, ∂µF P M /∂T > 0, ∂µF P M /∂α > 0, and ∂µF P M /∂t < 0. Finally, as T → ∞ or t → 0,
µF P M → 1/ (2 − α) .
Proof. See Section A.2.
15w̄ τ̄ , µ . In this no migration regime, regardless
Consider the results of Proposition 1 for wU <
of the policies selected by the elite, LR = L. The FPM motive compels landowners to make
peasants’ outside option as poor as possible. Since without an effective threat of migration to
another sector the only peasant outside option is income from their own plots, this is achieved by
imposing the highest taxation and poorest property rights institutions on the subsistence subsector,
17
τ̄ and µ. These policies minimize the rural equilibrium wage and thus increase their rents, or,
equivalently, maximize the proportion of rural labour in the capitalist sector.
Consider the results of Proposition 1 for wU < w̄ τ̄ , µ. In this no migration regime, regardless
Consider the results of Proposition 1 for wU < w̄ τ̄ , µ. In this no migration regime, regardless
landowners
to make
of the
policies
byProposition
the elite, L1Rfor=wL.
Consider
theselected
results of
w̄ τ̄ FPM
, µ. Inmotive
this nocompels
migration
regime, regardless
U <The
The
FPM
motive
compels
landowners
to make
of the
policies
selected
byProposition
the elite, L1Rfor=wL.
Consider
the
results
of
<
w̄
τ̄
,
µ
.
In
this
no
migration
regime,
regardless
U
peasants’
outside
optionof
poor
as possible.
Since
without
an effective
threat
of migration
to
The
FPM
motive
compels
landowners
to make
of
the
policies
selected
byas
the
elite,
L1Rfor=wL.
Consider
the
results
Proposition
<
w̄
τ̄
,
µ
.
In
this
no
migration
regime,
regardless
U
peasants’
outside
optionbyas the
poor
as possible.
Since
without
an effective
threat
of migration
to
=
L.
The
FPM
motive
compels
landowners
to
make
of
the
policies
selected
elite,
L
R
another
sector
the
only peasant
outside
option
is
income
from
their
own plots,
thisofismigration
achieved
by
peasants’
outside
option
as the
poor
as possible.
Since
without
an
effective
threat
to
=
L.
The
FPM
motive
compels
landowners
to
make
of
the
policies
selected
by
elite,
L
Roption is income from their own plots, this is achieved by
another
the option
only peasant
outside
peasants’sector
outside
as poor
as possible.
Since
without
an effective
threat
of migration
to
imposing
the
highest
taxation
and
poorest
property
rights
institutions
on
the
subsistence
subsector,
another sector
the option
only peasant
outside
option is
income
from an
their
own plots,
thisofismigration
achieved by
peasants’
outside
as
poor
as
possible.
Since
without
effective
threat
to
imposingsector
the highest
taxation
and
poorest
property
rights from
institutions
on the
subsistence
subsector,
thepolicies
only
peasant
outside
option
is income
their
own
plots,
thistheir
is achieved
by
These
minimize
the
rural
equilibrium
wage
and
thus
increase
rents,
or,
τ̄another
and
µ.
imposingsector
the highest
taxation
and
poorest
property
rights from
institutions
on the
subsistence
subsector,
another
thepolicies
only
peasant
outside
option
is income
plots,
thistheir
is achieved
by
τ̄ and µ. the
These
minimize
the rural
equilibrium
wagetheir
and own
thus
increase
rents, or,
imposing
highest
taxation
and poorest
property
rights
institutions
on
the
subsistence
subsector,
equivalently,
maximize
the
proportion
of
rural
labour
in
the
capitalist
sector.
τ̄ and µ. the
These
policies
minimize
the rural
equilibrium
wage and thus
increase
their subsector,
rents, or,
imposing
highest
taxation
and poorest
property
rights
institutions
on
the
subsistence
maximize
theminimize
proportion
ofrural
rural
labour
in the
capitalist
sector.
τ̄equivalently,
and
µ.
These
policies
the
equilibrium
wage
and
thus
increase
their
or,
I
In the
other
extreme,
the
societythe
is of
inrural
the unavoidable
migration
regime,
LR = Ltheir
for rents,
any comequivalently,
maximize
the
proportion
rural
labour in the
capitalist
sector.
R
τ̄ and
µ.
These
policies
minimize
equilibrium
wage
and
thus
increase
rents,
or,
I
In the other
extreme,
theproportion
society is of
in rural
the unavoidable
migration
regime,
LR = LIR for any comequivalently,
maximize
the
labour
the
capitalist
sector.
I /T̃ .inLet’s
examine
the
intuition
of
this
solution,
bination
of
policies.
Thus
landowners
maximize
L
=
L
for
any
comIn
the
other
extreme,
the
society
is
in
the
unavoidable
migration
regime,
L
R
R
equivalently,
maximize
thelandowners
proportion of rural labour
the capitalist
sector.
R
examineregime,
the
intuition
this
solution,
bination
policies.
Thus
LIIR /T̃ .inLet’s
for any
comIn theofin
other
extreme,
the society1.ismaximize
in the
unavoidable
migration
LI R/T̃= isLofIR
as stated
part
2
of
Proposition
It
is
straightforward
to
verify
that
L
/
T̃
.
Let’s
examine
the
intuition
of
this
solution,
bination
of
policies.
Thus
landowners
maximize
L
RR = LIRmonotonically
for
any
comIn
the
other
extreme,
the
society
is
in
the
unavoidable
migration
regime,
L
R
I
as statedofinpolicies.
part 2 of
Proposition
1. maximize
It is straightforward
verify the
thatintuition
LIR /T̃ isofmonotonically
/Landowners
T̃ . Let’sto
examine
this imposing
solution,
bination
Thus
landowners
LIR
,
and
this
has
a
simple
intuition.
receive
no
benefit
from
decreasing
in
τ
I
S
/
T̃
is
monotonically
as
stated
in
part
2
of
Proposition
1.
It
is
straightforward
to
verify
that
L
T̃ . Let’s examine
theno
intuition
this imposing
solution,
bination of in
policies.
Thus landowners
maximize LR /Landowners
R
I /T̃ isof
has a simple
receive
from
decreasing
τS , 2and
monotonically
as statedon
in the
part
of this
Proposition
1. It intuition.
is while
straightforward
to verify
that
Lbenefit
R
taxation
subsistence
sector
because,
increasing
the
share
of
rural
labour
in
their
plots,
I
,
and
this
has
a
simple
intuition.
Landowners
receive
no
benefit
from
imposing
decreasing
in
τ
S 2 of Proposition 1. It is straightforward to verify that LR /T̃ is monotonically
as statedon
in the
part
taxation
subsistence
sector
because,
while increasing
the share
of rural
labourfrom
in their
plots,
,
and
this
has
a
simple
intuition.
Landowners
receive
no
benefit
imposing
decreasing
in
τ
S
enough
migration
to the
urban
sector
thatthe
overall
labour
input
falls.
γ
E , it encourages
taxation
onintheτSsubsistence
sector
because,
while increasing
share
of rural
labour
in their
plots,
,
and
this
has
a
simple
intuition.
Landowners
receive
no
benefit
from
imposing
decreasing
enough migration
to the urban
sector thatthe
overall
labour
input
falls.
γ
E , it encourages
taxation
on the
subsistence
sector
because,
while
increasing
share
of rural
labour
in
their
plots,
Although
optimal
taxation
is
zero,
not
all
distortions
disappear
under
this
regime.
In
particular,
enough migration
to the urban
sector thatthe
overall
labour
input
falls.
γE , it encourages
taxation
on the
subsistence
sector
because,
while
increasing
share
of rural
labour
in
their
plots,
Although
optimal
taxation
is
zero,
not
all
distortions
disappear
under
this
regime.
In
particular,
it encourages
enough
migration
to the property
urban sector
that
overall
labourainput
falls.
γ
E , subsistence
the
sector
will
not
have
perfect
rights,
µ
=
1.
Instead,
similar
basic
trade-off
optimal
taxation
is zero,tonot
distortions
disappear
under
thisinput
regime.
In particular,
it encourages
enough
theall
urban
sector
that
overall
labour
falls.
γ
E , Although
the
subsistence
sector
will migration
not have
perfect
property
rights,
µ=
1. under
Instead,
a similar
basic
trade-off
Although
optimal
taxation
is zero,
not
all
distortions
disappear
this
regime.
In
particular,
between
better
rural
productivity
and
protection
of
property
rights
(i.e.,
between
the
productivity
the Although
subsistence
sector taxation
will not have
perfect
property
rights,
µ = 1. under
Instead,
a similar
basic
trade-off
optimal
is
zero,
not
all
distortions
disappear
this
regime.
In
particular,
between
better sector
rural productivity
and
protection
of rights,
property
rights
(i.e., between
thebasic
productivity
the
subsistence
will
not
have
perfect
property
µ
=
1.
Instead,
a
similar
trade-off
F
P
M
< 1.
and
security
effects
before),
implies
the of
optimal
level
of property
rights
is µFproductivity
between
better
ruraldiscussed
productivity
protection
property
rights
(i.e., between
the
the
sector
will not before),
haveand
perfect
property
rights,
µ=
1.
Instead,
arights
similar
P Mtrade-off
< 1.
and subsistence
security
effects
discussed
implies
the of
optimal
level
of property
is basic
µFproductivity
between
better
rural
productivity
and
protection
property
rights
(i.e.,
between
the
P
M
solution
alsodiscussed
shows that
the
equilibrium
of property
isbetween
anrights
increasing
function
< 1. of
andThe
security
effects
before),
implies
thelevel
optimal
level
ofrights
property
is µFproductivity
between
better
rural
productivity
and
protection
of
property
rights
(i.e.,
the
P
M
The
solution
alsodiscussed
shows that
the equilibrium
level
of property
rights
is anrights
increasing
function
< 1. of
and
security
effects
before),
implies
the
optimal
level
of
property
is
µ
α. Moreover,
in the
empirically
relevant
case ofthe
Tlevel
large
t small,
it isisalmost
wholly
F determined
Pfunction
M < 1. of
The
solution
alsodiscussed
shows that
the equilibrium
of and
property
rights
anrights
increasing
and
security
effects
before),
implies
optimal
level
of
property
is
µ
α. Moreover,
in the
empirically
relevant
case of Tlevel
large
and
t small,
it isisalmost
wholly determined
TheLarger
solution
also
shows
that
the important
equilibrium
of
property
rights
an
increasing
function
of
by
α.
means
landthat
is relevant
less
the of
production
function
and
land
rents
are less
α. Moreover,
inα the
empirically
case of in
Tlevel
large
and
t small,
it isisalmost
wholly
determined
The
solution
also
shows
the
equilibrium
property
rights
an
increasing
function
of
by
α.
Larger
α
means
land
is
less
important
in
the
production
function
and
land
rents
are
less
α. Moreover,
in the empirically
relevant
case of
T largeµand
small, it itis weakens
almost wholly
determined
F P Mt because
the security
important
in peasants’
decision
to
This
increases
by
α. Larger
means
land is relevant
lessstay.
important
in
the production
function
and land
rents
areeffect
less
α. Moreover,
inα the
empirically
case of
T large
and
small,
it itis weakens
almost
wholly
determined
F P Mt because
the
security
effect
important
in
peasants’
decision
to
stay.
This
increases
µ
by
α.
Larger
α
means
land
is
less
important
in
the
production
function
and
land
rents
are
less
F P M because
(theα.importance
of losing
land
rents
upon
pushes
µit down)
to the
proweakens
the security
important
in peasants’
decision
stay.
Thismigration,
increases
µwhich
by
Larger
α means
land
is to
less
important
in the production
function
andrelative
land
rents
areeffect
less
F
P
M
(the
importance
of
losing
land
rents
upon
migration,
which
pushes
µ
down)
relative
to
the
probecauseand
it weakens
the
security
effect
important
in peasants’
decision
to stay.
This increases
µproductivity
ductivity
effect
(the
impact
on
the
subsistence
sectors’
effective
land
endowment,
F
P
M
(the importance
of losing
land to
rents
upon
which because
pushes µit down)
relative
to theeffect
proweakens
the
important
in peasants’
decision
stay.
Thismigration,
increases
ductivity
effect
(the
impact
on the
subsistence
sectors’ µproductivity
effective
landsecurity
endowment,
(the
importance
of losing
land
rents
upon migration,
which pushesand
µ down)
relative
to the prowhich
persuades
the
elite
to
concede
better
property
rights).
ductivity
effect (the
impactland
on the
subsistence
sectors’ productivity
effective
land endowment,
(the
of losing
rents
upon migration,
which pushesand
µ down)
relative
to the prowhichimportance
persuades
the
elite toon
concede
better
property
rights).
ductivity
effect (the
impact
the also
subsistence
sectors’
productivity
and effective
land
endowment,
The
comparative
static
results
indicate
that
when
peasants
have
more
land
it
is
important
which persuades
the impact
elite toon
concede
better property
rights).
ductivity
effect (the
the also
subsistence
sectors’
productivity
and effective
land
endowment,
Thepersuades
comparative
statictoresults
indicate
that when
peasants have
more land
it is
important
which
the
elite
concede
better
property
rights).
to
reduce
the security
of their
property
rights,
compelling
them to have
stay. more
Indeed,
if it
t is
small
Thepersuades
comparative
static
results
alsobetter
indicate
that when
peasants
land
is very
important
which
the
elite
to
concede
property
rights).
to reduce
the securitystatic
of their
property
rights, compelling
them to have
stay. more
Indeed,
if it
t is
very
small
The
comparative
results
also
indicate
that
when
peasants
land
is
important
then
staying
the rural
to
protect
their land
rents
ispeasants
relatively
unimportant.
Instead,
where
to
reduce
theinsecurity
of areas
their
property
rights,
compelling
them
to have
stay.
Indeed,
if it
t is
very
small
The
comparative
static
results
also
indicate
that
when
more
land
is
important
then
staying
insecurity
the rural
areas
to
protectrights,
their land
rents is them
relatively
unimportant.
Instead,
where
to
reduce
the
of
their
property
compelling
to
stay.
Indeed,
if
t
is
very
small
peasants
are
able
control
or to
obtain
larger
concessions,
thetomodel
predicts
that
landowners
then
staying
in
thetorural
areas
protect
theirland
land
rents is them
relatively
unimportant.
Instead,
where
to
reduce
the
security
of
their
property
rights,
compelling
stay.
Indeed,
if
t
is
very
small
peasants
are in
able
torural
control
or to
obtain
larger
the model
predicts that
landowners
thentry
staying
thecompensate
areas
protect
theirland
landconcessions,
rents is relatively
unimportant.
Instead,
where
will
to
partly
for
this
by
reducing
µ.
peasants
are
able
to
control
or
obtain
larger
land
concessions,
the
model
predicts
that
landowners
thentry
staying
in thecompensate
rural areas to protect
their landµ.rents is relatively unimportant. Instead, where
will
partly
this by
reducing
peasantstoare
able to control orfor
obtain
larger
land concessions, the model predicts that landowners
will
try
to
partly
compensate
for
this
by
reducing
µ.
peasants
are able
tohighlights
control orinobtain
larger land
the model
predicts
landowners
The
FPM
case
the
simplest
formconcessions,
the main argument
about
poorthat
property
rights
will try to partly compensate for this by reducing
µ.
The
FPM
casecompensate
highlights in
the
simplest
form µ.
the main argument about poor property rights
will
try
to
partly
for
this
by
reducing
as aThe
distinct
whichinpersists
because
it ties
to the about
land. poor
However,
it does
so
FPM distortion
case highlights
the simplest
form
the peasants
main argument
property
rights
as aThe
distinct
distortion
whichinpersists
because
it ties
peasants
to the about
land. poor
However,
it does
so
FPM
case
highlights
the
simplest
form
the
main
argument
property
rights
by
any
direct
tax
benefit
for
elite landowners.
To argument
understand
the puzzle
of persistently
as aremoving
distinct
distortion
which
persists
because
it ties
peasants
to the about
land.
However,
it does
so
The
FPM
case
highlights
in
the
simplest
form
the
main
poor
property
rights
by
removing
any
direct tax
benefit
for because
elite landowners.
To understand
the puzzle
of persistently
as
a
distinct
distortion
which
persists
it
ties
peasants
to
the
land.
However,
it
does
so
bad
property
rights,
one tax
must
ask
whether
choose
them
even
when
they
directly
from
by
removing
any
direct
benefit
for because
eliteelites
landowners.
To understand
the puzzle
of benefit
persistently
as
a
distinct
distortion
which
persists
it
ties
peasants
to
the
land.
However,
it
does
so
bad
property any
rights,
one tax
must
ask whether
choose them
even when they
directly
from
by removing
direct
benefit
for
eliteelites
landowners.
Toinunderstand
the
puzzle
of benefit
persistently
taxation
in
the
subsistence
sector.
I
turn
to
these
issues
two
steps.
First,
I
demonstrate
by
bad
property
rights,
one
must
ask
whether
elites
choose
them
even
when
they
directly
benefit
from
by removing
anysubsistence
direct tax benefit
for
elite to
landowners.
Toinunderstand
the
puzzle
of persistently
taxation
in the
sector.
I turn
these
issues
two when
steps. they
First,
I demonstrate
by
bad property
rights,
one must
ask revenues
whether
elites
choose
them
even
directly
benefit
from
solving
the
RE
problem
that
tax
accruing
to
the
elite
are
always
increasing
in property
taxation
in
the
subsistence
sector.
I
turn
to
these
issues
in
two
steps.
First,
I
demonstrate
by
bad
property
rights,
one
must
ask
whether
elites
choose
them
even
when
they
directly
benefit
from
solving
the
RE
problem
thatsector.
tax revenues
accruing
to
the in
elite
aresteps.
alwaysFirst,
increasing
in property
taxation
in
the
subsistence
I
turn
to
these
issues
two
I
demonstrate
by
rights.
Next,
show
that
despite
this
result,
in theto
full
toalways
the First,
model
may
solving
that
tax revenues
accruing
thesolution
elite
aresteps.
increasing
in property
taxationthe
in RE
theII problem
subsistence
sector.
I turn
to these
issues
in
two
I landowners
demonstrate
by
rights.
Next,
show
that
despite
this
result,
in
the
full
solution
to
the
model
landowners
may
solving low
the property
RE problem
that
tax revenues
accruing
to by
the“modernization.”
elite are always increasing in property
choose
rights,
especially
when
threatened
rights.
Next,
show that
despite
this result,
in thetofull
the model
landowners
may
solving low
the
REI problem
that
tax revenues
accruing
thesolution
elite aretoalways
increasing
in property
choose
property
especially
threatened
by
“modernization.”
rights. Next,
I showrights,
that despite
thiswhen
result,
in the full
solution
to the model landowners may
choose
property
especially
threatened
by solution
“modernization.”
rights. low
Next,
I showrights,
that despite
thiswhen
result,
in the full
to the model landowners may
choose low property rights, especially when threatened
by “modernization.”
16
choose low property rights, especially when threatened
by “modernization.”
16
16
16
16
18
4.2 Revenue Extraction
4.2 Revenue Extraction
4.2
Revenue
Consider
now the Extraction
problem of maximizing Revenue Extraction (RE) only66 :
4.2 Revenue
Consider
now the Extraction
problem of maximizing Revenue Extraction (RE) only6 :
Consider now the problem of maximizing Revenue
Extraction (RE) only :
1
α 1−α (RE) only6 :
Consider now the problem of maximizing
Revenue
Extraction
(16)
max τS 1 µ (γS L
R )α t1−α .
τ,µ τ
(16)
max
µ (γS LR )α t1−α .
S α
1
.
τ,µ τ
(16)
L
)
t
max
µ
(γ
S α
S
R
1
τ,µ
α
.
(16)
τSthat,
LRRE
)α t1−α
max
µin
(γSthe
Unlike Proposition 1, this section shows
solution,
policies
are
similar
at
different
τ,µ
α in the RE solution, policies are similar at different
Unlike Proposition 1, this section shows
that,
levels
the urban1,wage.
In particular,
thereinis the
an intermediate
of taxation,
level
Unlikefor
Proposition
this section
shows that,
RE solution, level
policies
are similarand
at the
different
levels
for
the
urban
wage.
In
particular,
there
is
an
intermediate
level
of
taxation,
and
the
level
Unlike
Proposition
this section
showsI that,
RE key
solution,
policies
aresolution
similarand
at the
different
of
property
always
summarize
features
ofofthe
in
next
levels
for
therights
urbanis1,wage.
Inmaximal.
particular,
thereinis the
an the
intermediate
level
taxation,
level
of
property
rights
is
always
maximal.
I
summarize
the
key
features
of
the
solution
in
the
next
levels
for therights
urbanis wage.
particular,I summarize
there is an the
intermediate
levelofofthe
taxation,
the level
Proposition.
of property
alwaysInmaximal.
key features
solutionand
in the
next
Proposition.
of
property
rights
is
always
maximal.
I
summarize
the
key
features
of
the
solution
in
the
next
Proposition.
Proposition 2 (Summary of RE policies) Suppose the elite solves problem (16). Then, with
Proposition.
Proposition 2 (Summary of∗ RE policies) Suppose the elite solves problem (16). Then,
with
frompolicies)
Remark 1,Suppose
the unique
political
equilibrium
features
µRE
=1
w̄ (τ, µ) as defined
in (10) andof
µ∗ RE
Proposition
2 (Summary
the elite
solves
problem (16).
Then,
with
RE
inLaf
µ from Remark 1, the unique political equilibrium features µ
=1
w̄ (τ, µ)
as defined
(10)
and
RE
f
er
Proposition
2
(Summary
of
RE
policies)
Suppose
the
elite
solves
problem
(16).
Then,
with
∗
RE
=defined
min τ̄ ,in
τ Laf
and
, where:
=1
w̄
(τ,τµ)
(10)
and
µ from Remark 1, the unique political equilibrium features µ
SREas
f
er
=defined
min τ̄ ,in
τ Laf
and
τµ)
, where:
∗ from Remark 1, the unique political equilibrium features µRE = 1
SREas
w̄
(τ,
(10)
and
µ
f
er
and τS = min τ̄ , τ
, where:
f er ∈ (1 − α, 1) .
w̄ τ̄ , µ , then τ Laf
(No=migration)
If fwerU <
min τ̄ , τ Laf
, where:
and1.τSRE
f er ∈ (1 − α, 1) .
1. (No migration) If wU < w̄ τ̄ , µ , then τ Laf
Laf f er ∈ (1 − α,
Laf
f
er
Laf
f
er
<
w̄
τ̄
,
µ
,
then
τ
1)f.er /∂t > 0. Finally, as T → ∞ or
1. Moreover,
(No migration)
If
w
U
∂τ Laf f er /∂T
< 0, ∂τLaf f er /∂α
< 0, and ∂τ Laf
Laf f er /∂t > 0. Finally, as T → ∞ or
Laf<f er
∂τ
/∂T
<
0,
∂τ
/∂α
0,
and
∂τ
<
w̄
τ̄
,
µ
,
then
τ
∈
(1
−
α,
1) .
1. Moreover,
(No migration)
If
w
U
f erLaf
→f er
1 /∂T
−
α. < 0, ∂τ Laf f er /∂α < 0, and ∂τ Laf f er /∂t > 0. Finally, as T → ∞ or
t → 0, τ Laf
Moreover,
∂τ
Laf
f
er
→f er
1 − α. < 0, ∂τ Laf f er /∂α < 0, and ∂τ Laf f er /∂t > 0. Finally, as T → ∞ or
t → 0, τ Laf∂τ
Laf
Moreover,
f er → 1 /∂T
− α.
t → 0, τ
f er = 1 − α.
2. (Unavoidable
If wU > w̄ (0, µ∗∗ ) , then τ Laf
Laf f ermigration)
→
1
−
α.
t
→
0,
τ
Laf
= 1 − α.
2. (Unavoidable migration) If wU > w̄ (0, µ∗ ) , then τ Laf ff er
er = 1 − α.
2. (Unavoidable migration) If wU > w̄ (0, µ ) , then τ
Proof.
See Section migration)
A.3.
2. (Unavoidable
If wU > w̄ (0, µ∗ ) , then τ Laf f er = 1 − α.
Proof. See Section A.3.
The intuition
for A.3.
this solution in the no migration regime (when LR = L) is simple. To maximize
Proof.
See Section
The intuition
for A.3.
this solution in the no migration regime (when LR = L) is simple. To maximize
Proof.
See
Section
tax The
revenue,
the for
landowning
eliteinhas
interest
on raising
in theTosubsistence
maximize
intuition
this solution
the anodirect
migration
regime
(when Lproductivity
R = L) is simple.
tax The
revenue,
the for
landowning
eliteinhas
anodirect
interest
on raising
productivity
in theTosubsistence
=
L)
is
simple.
maximize
intuition
this
solution
the
migration
regime
(when
L
R
other hand,
there is ainstandard
Laffersector
to increase
the tax base.
With
τS , on the
tax
revenue,
the landowning
elite
hasrespect
a directtointerest
on raising
productivity
the subsistence
,
on
the
other
hand,
there
is
a
standard
Laffersector
to
increase
the
tax
base.
With
respect
to
τ
S
tax
revenue,
the
landowning
elite
has
a
direct
interest
on
raising
productivity
in
the
subsistence
curve
Although
there
is no
labour-leisure
workers
a unit
of
, on the for
other
hand, and
therethey
is a supply
standard
Laffersector logic.
to increase
the tax
base.
With
respect to τStrade-off
curve
logic.
Although
there
is no
labour-leisure
trade-off
for
workers
and
they
supply
a unit
of
,
on
the
other
hand,
there
is
a
standard
Laffersector
to
increase
the
tax
base.
With
respect
to
τ
S
there aexists
labour
inelastically,
labour
supply
the subsistence
sector for
responds
to and
τS because
curve logic.
Although
there
is no in
labour-leisure
trade-off
workers
they supply
unit an
of
there aexists
an
labour
inelastically,
labour
supply
in
the subsistence
sector for
responds
to and
τS because
curve
logic.
Although
there
is
no
labour-leisure
trade-off
workers
they
supply
unit
of
alternative,
untaxed
sector
in
the
elite’s
farms.
Therefore,
increasing
the
tax
rate
reduces
the
tax
labour inelastically, labour supply in the subsistence sector responds to τS because there exists an
alternative,
untaxed
sector
in
the
elite’s
farms.
Therefore,
increasing
the
tax
rate
reduces
the
tax
because
thereofexists
an
labour
supply
ininthe
subsistence
sector
responds
to
Stax
base
byinelastically,
reducing
thelabour
share
thefarms.
subsistence
sector.
Unless the
level
feasible
alternative,
untaxed
sectorof
inlabour
the elite’s
Therefore,
increasing
theτexogenous
rate reduces
the tax
base
by
reducing
the
share
of
labour
in
the
subsistence
sector.
Unless
the
exogenous
level
of
feasible
Laf
f
er
alternative,
sector
thewill
elite’s
farms.
Therefore,
increasing
the tax∈ rate
thethat
tax
(1 −reduces
α, 1) of
such
taxation,
τ̄ , untaxed
is binding,
taxation
set
at the
interior
taxUnless
rate τthe
base by reducing
the share
ofinlabour
inbethe
subsistence
sector.
feasible
Laf exogenous
f er ∈ (1 − level
α,
1)
such
that
taxation,
τ̄
,
is
binding,
taxation
will
be
set
at
the
interior
tax
rate
τ
base
by reducing
the share
of labour
the
sector.
exogenous
of
feasible
Laf
f er ∈ (1
the
marginal
in taxation
revenue
from
raising
tax
rate
equates
theτthe
marginal
decrease
revenue
− level
α, 1) in
such
that
taxation,
τ̄ , isincrease
binding,
willinbe
setsubsistence
atthe
the
interior
taxUnless
rate
the
marginal
increase
in
revenue
from
raising
the
tax
rate
equates
the
marginal
decrease
in
revenue
Laf
f
er
∈
(1
−
α,
1)
such
that
taxation,
τ̄
,
is
binding,
taxation
will
be
set
at
the
interior
tax
rate
τ
frommarginal
the tax increase
base erosion.
the
in revenue from raising the tax rate equates the marginal decrease in revenue
from
the
tax
base
erosion.
I revenue
the
marginal
increase
in revenue
the tax ratemigration
equates the
marginal
for any
thetax
other
societyfrom
is inraising
the unavoidable
regime
and decrease
LR = Lin
fromIn
the
baseextreme,
erosion.
IR for any
In
the
other
extreme,
society
is
in
the
unavoidable
migration
regime
and
L
=
L
R
R
from
the
tax
base
erosion.
I
combination
of policies.
characterize
solution inmigration
this case,regime
it canand
be L
shown
again
that
In the other
extreme, To
society
is in thethe
unavoidable
R = L
R for any
combination
of policies.
To
characterize
the
solution inmigration
this case,regime
it canand
be L
shown
again
I for that
=
L
any
In
the
other
extreme,
society
is
in
the
unavoidable
R
although poorofproperty
may deter some
maximand
is increasing
inagain
µ
R for each
combination
policies.rights
To characterize
the migration,
solution inthe
this
case, it can
be shown
that
although
poor
property
rights
may
deter
some
migration,
the
maximand
is
increasing
in
µ
for
each
combination
policies.
To level
characterize
the migration,
solution
this
case,
it given,
can
bethe
shown
that
the
preferred
µ remains
equal 1. in
Taking
this as
optimal
level
of
τalthough
S . Therefore,
poorofproperty
rights
mayofdeter
some
the
maximand
is increasing
inagain
µ for
each
.
Therefore,
the
preferred
level
of
µ
remains
equal
1.
Taking
this
as
given,
the
optimal
level
of
τalthough
S
poor property
rightslevel
mayofdeter
some migration,
the maximand
is increasing
in µ for
each
the preferred
remains
equal
1. Taking
this as
given,
optimal
level
of
τS . 6 Therefore,
One may alternatively
think of
the RE µproblem
as that
which
emerges when
all the
landthe
is under
the control
of
6
One may alternatively
think
of
the
RE
emerges
when
all they
the
land
is under
of
Therefore,
the preferred
level
of the
µproblem
remains
equal
1. Taking
this as
given,
the
optimal
level
of
τthe
sector,
t = T.
Indeed,
when
elites as
arethat
not which
involved
in production,
inevitably
dothe
notcontrol
compete
S . 6subsistence
One may
think
of the
REand
problem
that
emerges
when all they
the
is under
the
control
of
the
subsistence
sector,
t = T.
Indeed,
when
the
elites
are
not which
involved
in production,
inevitably
not
compete
for factors
withalternatively
the subsistence
producers,
focusas
merely
on revenue
extraction.
Theland
features
of do
the
solution
to
6
the
subsistence
sector,
tseen
= T.
when
the
are
not which
involved
in production,
they
inevitably
not
compete
One
may
think
of the
RE
problem
that
emerges
when
the
is under
the
control
of
for
withalternatively
the be
subsistence
focusas
merely
on
revenue
extraction.
Theland
features
of do
the
solution
to
suchfactors
a problem
can
asIndeed,
a producers,
special
caseand
of elites
problem
(16).
Thus
I focus
on
theall
latter.
for
with sector,
the be
subsistence
focus are
merely
on
revenue
extraction.
The features
of do
thenot
solution
to
the
subsistence
tseen
= T.asIndeed,
when
the
not involved
in production,
they
inevitably
compete
suchfactors
a problem
can
a producers,
special
caseand
of elites
problem
(16).
Thus
I focus
on the latter.
suchfactors
a problem
seen as a producers,
special caseand
of problem
(16). on
Thus
I focus
on the latter.
for
with can
the be
subsistence
focus merely
revenue
extraction.
The features of the solution to
such a problem can be seen as a special case of problem 17
(16). Thus I focus on the latter.
17
17
17
19
f er , can be easily calculated as τ Laf f er = 1−α. Again, the exogenous limit to taxation
taxation, τ Laf
taxation, τ Laf f er , can be easily calculated as τ Laf f er = 1−α. Again, the exogenous
limit to taxation
=
min
{τ̄ , 1 − α}, as
may become binding. Thus, the equilibrium level of taxation is given by τ RE
RE = min {τ̄ , 1 − α}, as
may
become
binding.
Thus,
the
equilibrium
level
of
taxation
is
given
by
τ
Laf
f
er
Laf
f
er
taxation,
τ Proposition.
, can be easily calculated as τ
= 1−α. Again, the exogenous limit to taxation
noted
in the
noted
in
the
Proposition.
RE = min {τ̄ , 1 − α}, as
mayRegarding
become binding.
Thus,static
the equilibrium
of taxation
is given
comparative
results, thelevel
tax rate
is higher
when by
α isτ small.
In this case, the
Regarding
comparative
static
results,
the
tax
rate
is
higher
when
α
is
small.
In this case, the
noted
Proposition.
extent in
of the
distortions
is reduced, since there are greater diminishing returns to labour and labour
extent
of distortions
is reduced,
since there
are
greateris diminishing
to labour
and
labour
Regarding
comparative
static
thethe
tax
higher
whenreturns
α iselite
small.
case,
the
input
declines little
in response
to results,
taxes. In
norate
migration
regime,
the
alsoIn
setthis
a higher
tax
input
declines
little
in
response
to
taxes.
In
the
no
migration
regime,
the
elite
also
set
a
higher
tax
extent
of distortions
since More
there land
are greater
returns
to labour
andincrease
labour
rate when
t is larger is
orreduced,
T is smaller.
in the diminishing
traditional sector
amounts
to an
rate
when
t
is
larger
or
T
is
smaller.
More
land
in
the
traditional
sector
amounts
to
an
increase
input
little
response
thealternative
no migration
regime, the
eliteisalso
higher less
tax
in thedeclines
tax base.
A in
decrease
in to
T taxes.
impliesInthe
landowner
sector
ableset
toaabsorb
in
the
tax
base.
A
decrease
in
T
implies
the
alternative
landowner
sector
is
able
to
absorb
less
rate
when
t isoflarger
T is reduce
smaller.
land in
the traditional
to an
increase
labour.
Both
theseoreffect
theMore
elasticity
of peasant
labour sector
supplyamounts
to taxation,
increasing
labour.
Both
of
these
effect
reduce
the
elasticity
of
peasant
labour
supply
to
taxation,
increasing
in
tax base.
A decrease
in T implies
the alternative
is able oftorelative
absorb land
less
thethe
optimal
tax rate.
With unavoidable
migration,
instead,landowner
taxation issector
independent
the
optimal
tax
rate.
With
unavoidable
migration,
instead,
taxation
is
independent
of
relative
land
labour.
Both The
of these
effect
reduce
elasticity
of peasant
supplyis to
taxation,
increasing
endowments.
reason
is that
thethe
relevant
outside
option labour
for peasants
now
the urban
sector,
endowments.
The
reason
is
that
the
relevant
outside
option
for
peasants
is
now
the
urban
sector,
the
optimal
rate. With
unavoidable
instead, taxation
independent of relative
land
which
has a tax
capacity
to absorb
workers migration,
that is independent
of rural is
land.
which
has
a
capacity
to
absorb
workers
that
is
independent
of
rural
land.
endowments. The reason is that the relevant outside option for peasants is now the urban sector,
In has
sum,a when
theto
objective
is maximizing
revenues,ofincreasing
urban wages reduce taxawhich
capacity
absorb workers
that is tax
independent
rural land.
In sum, when the objective is maximizing tax revenues, increasing urban wages reduce taxation to some extent, but property rights are maintained at their maximum level. This moderate
tionIntosum,
somewhen
extent,
property
rights are maintained
at their
maximum
This
moderate
thewbut
objective
is maximizing
tax revenues,
increasing
urbanlevel.
wages
reduce
taxachange in policy
as
U rises contrasts the FPM solution, where bad property rights persist and
rises
contrasts
the
FPM
solution,
where
bad
property
rights
persist
and
change
in
policy
as
w
U
tion
to some
extent,bybut
property rightsIn
arethe
maintained
at their
maximum
level.
moderate
taxation
is limited
“modernization.”
RE solution,
unlike
FPM, the
dual This
economy
does
taxationinispolicy
limitedasby
In FPM
the RE
solution,
unlike
FPM,
the dual
economy
rises
the
solution,
where
bad
property
rights
persist does
and
change
wU“modernization.”
not emerge endogenously
as wcontrasts
U increases. Revenue extraction, in other words, poorly explains the
increases.
Revenue
extraction,
in
other
words,
poorly
explains
the
not
emerge
endogenously
as
w
U
taxation
limited by
“modernization.”
the RE
solution, unlike
FPM,with
the differential
dual economy
does
dual
ruraliseconomy.
The
RE economy is In
instead
a single-sector
economy
taxation
dual
rural economy.
The RE
is instead
a single-sector
economy
with differential
taxation
7U. increases.
Revenue
extraction,
in
other
words,
poorly
explains
the
not politically-weak
emerge
endogenously
as weconomy
Thus, it is
important
to examine
whether
the
argument
about
on
producers
7
.
Thus,
it
is
important
to
examine
whether
the
argument
about
on
politically-weak
producers
dual
rural economy.
The
RE economy
is instead
a single-sector
economy
with to
differential
the persistence
of bad
property
rights set
forth with
the FPM case
is robust
inclusion taxation
of a RE
the
persistence
of
bad
property
rights
set
forth
with
the
FPM
case
is
robust
to
inclusion
a RE
7
. Thus,
it is important to examine whether the argumentof about
on
politically-weak
producers
concern.
The next section
tackles
this issue.
concern.
The next
section
tackles
this issue.
the persistence
of bad
property
rights
set forth with the FPM case is robust to inclusion of a RE
concern.
TheCombined
next sectionProblem
tackles this issue.
4.3
The
4.3 The Combined Problem
In this section I examine problem (12), so that the elite receives the full benefit of taxation of peas4.3
Combined
Problem
In thisThe
section
I examine problem
(12), so that the elite receives the full benefit of taxation of peasants’ income and is also concerned with obtaining cheap labour. The next Proposition summarizes
ants’
income
is also concerned(12),
withso
obtaining
labour. the
Thefull
next Proposition
summarizes
In this
sectionand
I examine
that that
the cheap
elite
of taxation
peasthe
solution.
To
simplifyproblem
the cases, I suppose
the receives
exogenous
limit benefit
to taxation
is not of
binding
the
solution.
To
simplify
the
cases,
I
suppose
that
the
exogenous
limit
to
taxation
is
not
binding
ants’
income
and Corollary
is also concerned
with obtaining
cheap labour.
The next
Proposition
summarizes
(and note
in the
an important
instance where
the solution
changes
if it were).
(and
note
in
the
Corollary
an
important
instance
where
the
solution
changes
if
it
were).
the solution. To simplify the cases, I suppose that the exogenous limit to taxation is not binding
Proposition
3 (Summary
COM instance
policies)where
Suppose
the elitechanges
solves problem
(12). Also,
(and
note in the
Corollary an of
important
the solution
if it were).
Proposition 3 (Summary of COM policies) Suppose the elite
solves problem (12). Also,
∗
assume that τ̄ = 1. Then, with w̄ (τ, µ) as defined in (10) and µ∗ from Remark 1, the unique
µ from Remark 1, theCOM
COM
assume
that τ̄3 =(Summary
1. Then, with
w̄ (τ, µ) policies)
as definedSuppose
in (10)
andelite
Proposition
of following
COM
solves problem (12). unique
Also,
political equilibrium
features the
level of taxation τthe
SCOM and property rights (µCOM ):
and
property
rights
(µ
):
political
equilibrium
features
the
following
level
of
taxation
τ
∗
assume that τ̄ = 1. Then, with w̄ (τ, µ) as defined in (10) Sand µ from Remark 1, the unique
COM ∈ (τ Laf f er , 1), where τ Laf
f er
1. (Noequilibrium
migration)features
If wU <the
w̄ following
τ̄ , µ , then
µCOM
= 1 and ττCOM
and property rights (µCOM ): is
political
level
of taxation
S
1. (No migration) If wU < w̄ τ̄ , µ , then µCOM = 1 and τSSCOM ∈ (τ Laf f er , 1), where τ Laf f er is
as in Proposition 2, part 1.
Proposition
1. as
(Noinmigration)
If 2,
wUpart
< w̄1. τ̄ , µ , then µCOM = 1 and τSCOM ∈ (τ Laf f er , 1), where τ Laf f er is
7
Since property rights are maintained at their maximum level and taxation is moderated by the desire not to
7 as in Proposition 2, part 1.
property
rights
maintained
their maximum
level
andintaxation
moderated by
the desire
to
erodeSince
the tax
base, the
RE are
solution
is also at
associated
with lower
costs
terms ofisproductivity.
Relatedly,
thenot
share
erode
the working
tax base,inthe
RE
solutionsector
is alsois associated
with
lower
costs
ineconomy.
terms of productivity. Relatedly, the share
of labour
the
capitalist
not
as
large
as
in
the
FPM
7
Sinceworking
property
are maintained
maximum
level
and economy.
taxation is moderated by the desire not to
of labour
in rights
the capitalist
sector isat
nottheir
as large
as in the
FPM
erode the tax base, the RE solution is also associated with lower costs in terms of productivity. Relatedly, the share
18in the FPM economy.
of labour working in the capitalist sector is not as large as
18
18
20
(Unavoidable migration) If wU > w̄ (0, µ∗∗ ) , then there exist thresholds t and t̄ with 0 < t <
(Unavoidable migration) If wU > w̄ (0, µ∗ ) , then there exist thresholds t and t̄ with 0 < t <
t̄(Unavoidable
< 1 such that:
migration) If wU > w̄ (0, µ∗ ) , then there exist thresholds t and t̄ with 0 < t <
t̄(Unavoidable
< 1 such that:
migration) If wU > w̄ (0, µ∗ ) , then there exist thresholds t and t̄ with 0 < t <
t̄(Unavoidable
< 1 such that:
migration) If wU > w̄ (0,COM
µ ) , then there exist thresholds t and t̄ with 0 < t <
t̄ <i.1ifsuch
that:
= 0 and µCOM = µFF PP M
;
t ∈ (0,
t], then τSCOM
COM
t̄ <i.1ifsuch
that:
;
t ∈ (0,
t], then τSCOM = 0 and µCOM = µF P M
M
COM =
COM
01 −
and
µand
= µF =
;
i. if t ∈ (0,
=
α,
µ
1.
ii.
[t̄, Tt],], then
then ττSSCOM
COM
P
M
COM =
COM
01 −
and
µand
=
µ
;
i. if t ∈ (0,
=
α,
µ
=
1.
ii.
[t̄, Tt],], then
then ττSSCOM
COM COM
FPM;
COM =
0
and
µ
=
µ
i. if t ∈ (0,
τ
=
1
−
α,
and
µ
=
1.
ii.
[t̄, Tt],], then
then
τ
SSCOM
α(1−α) COM
α,
and µCOM
=f er
1., then µCOM = µ and τSCOM = τ̄ .
ii. if1t If
∈w
[t̄,UT<
], w̄
then
Corollary
τ Laf
τ̄ , τµSCOM
and=τ̄ 1<−1+α(1−α)
α(1−α) <
Laf
f er
α,
and
µ
=
1., then µCOM = µ and τ COM = τ̄ .
ii. if1t If
∈w
[t̄,UT<
], w̄
then
Corollary
<
τ
τ̄ , τµS and=τ̄ 1<−1+α(1−α)
α(1−α)
Laf f er , then µCOM = µ and τSCOM = τ̄ .
Corollary 1 If wU < w̄ τ̄ , µ and τ̄ < 1+α(1−α)
<
τ
SCOM
α(1−α)
Laf f er
COM
Corollary
If wU A.4.
< w̄ τ̄ , µ and τ̄ < 1+α(1−α)
Proof.
See 1Section
α(1−α) < τ Laf f er , then µCOM = µ and τSCOM = τ̄ .
Corollary
If wU A.4.
< w̄ τ̄ , µ and τ̄ < 1+α(1−α) < τ
, then µ
= µ and τS
= τ̄ .
Proof.
See 1Section
To understand
3, it is useful to contrast it with Propositions 1 and 2.
Starting with
Proof.
See SectionProposition
A.4.
To understand
Proposition
it is useful to contrast it with Propositions 1 and 2. Starting with
Proof.
See Section
A.4. Part 3,
the
no understand
migration
regime,
1 it
of isProposition
3 showsit that
the elite 1can
benefit from
To
Proposition
3,
useful to contrast
with once
Propositions
andalso
2. Starting
with
Proof.
See
Section
A.4.
the To
no understand
migration regime,
Part 3,
1 it
of isProposition
3 showsit that
once
the elite 1can
also
benefit from
Proposition
useful
to
contrast
with
Propositions
and
2.
Starting
with
taxation
of
peasants’
income,
RE-type
policies
with
optimal
property
rights
and
positive
but
less
the To
no understand
migration regime,
Part 3,
1 it
of isProposition
3 showsit that
once
the elite 1can
benefit from
Proposition
useful
to contrast
withproperty
Propositions
andalso
2. Starting
with
taxation
of
peasants’
income,
RE-type
policies
with
optimal
rights
and
positive
but
less
the
no
migration
regime,
Part
1
of
Proposition
3
shows
that
once
the
elite
can
also
benefit
from
than
confiscatory
taxation
similar
toProposition
those
of Proposition
2 will
prevail.
taxation
of peasants’
income,
RE-type
policies
with
optimal
property
rights
andalso
positive
butfrom
less
the
no
migration
regime,
Part
1
of
3
shows
that
once
the
elite
can
benefit
than
confiscatory
taxation
similar
to those
of Proposition
2 will
prevail.rights and positive but less
taxation
of peasants’
income,
RE-type
policies
with optimal
property
The
intuition
for
why,
without
migration,
incentives
to
extract
revenue
prevail
over
reducing
than confiscatory
taxation
similar
to those
of Proposition
2 will
prevail.rights and positive but less
taxation
of peasants’
income,
RE-type
policies
with optimal
property
intuition
for
why,
without
incentives
to
extract
revenue prevail over reducing
thanThe
confiscatory
taxation
similar
tomigration,
those
of Proposition
2 will
prevail.
wages
stems
directly
from
the
proof
in
Section
A.4.
In
particular,
elite
consumption
can be
either
The
intuition for
why, without
migration,
incentives to
extract
revenue
prevail over
reducing
than
confiscatory
taxation
similar
to
those
of
Proposition
2
will
prevail.
wages
stems
directly
from
the
proofmigration,
in Section incentives
A.4. In particular,
elite
consumption
can be
either
The
intuition
for
why,
without
to
extract
revenue
prevail
over
reducing
increasing
or directly
decreasing
with
the
level
property
in
peasants’
plots,
for
the reasons
already
wages
stems
from
the
proof
inofSection
A.4.rights
In particular,
elite
consumption
can be
either
The
intuition
for
why,
without
migration,
incentives
to
extract
revenue
prevail
over
reducing
increasing
or directly
decreasing
with
the
level
ofSection
property
rights
in peasants’
plots,
for the reasons
already
wages
stems
from
the
proof
in
A.4.
In
particular,
elite
consumption
can
be
either
emphasized
the FPM
and
RE
cases,
respectively.
On
the
hand,
FPM
implies
by be
reducing
increasing
orindirectly
decreasing
with
the
level
ofSection
property
rights
inone
peasants’
plots,
for thethat
reasons
already
wages
stems
from
the
proof
in
A.4.
In
particular,
elite
consumption
can
either
emphasized
the FPM and
respectively.
On theinone
hand, FPM
implies
that
by reducing
increasing
orindecreasing
withRE
thecases,
level
of property
rights
peasants’
plots,
for the
reasons
already
peasant
income
in
their
own
plots,
bad
property
rights
increase
peasants’
labour
supply
for
the
elite.
emphasized
in
the
FPM
and
RE
cases,
respectively.
On
the
one
hand,
FPM
implies
that
by
reducing
increasing
or decreasing
withplots,
the level
of property
rights
in peasants’
plots,
for the
reasons
already
peasant
income
in FPM
their own
bad respectively.
property
rights
increase
peasants’
labour
supply
for
the
elite.
emphasized
in
the
and
RE
cases,
On
the
one
hand,
FPM
implies
that
by
reducing
On
the other
hand,
RE indicates
that
also reduce
tax
revenues,
received
by politically
powerful
peasant
income
in FPM
their
own
plots,
badthey
property
rights
increase
peasants’
labour
supply
for
the
elite.
emphasized
in
the
and
RE
cases,
respectively.
On
the
one
hand,
FPM
implies
that
by
reducing
On
the other
hand,
RE indicates
that
they
also reduce
tax revenues,
received
by politically
powerful
peasant
income
in
their
own
plots,
bad
property
rights
increase
peasants’
labour
supply
for
the
elite.
landowners.
While
REindicates
and plots,
FPM
push
the
elite
on different
directions
regarding
property
rights
On
the other
hand,
RE
that
they
also
reduce
tax revenues,
received
by politically
powerful
peasant
income
in their
own
bad
property
rights
increase
peasants’
labour
supply
for the
elite.
landowners.
While
RE
and
FPM
push
the
elite
on
different
directions
regarding
property
rights
On the other the
hand,
REhas
indicates
that to
they
also reduce
tax revenues,
received
byfor
politically
powerful
institutions,
elite
incentives
impose
high
taxes
on
peasants
both
tax
revenue
and
landowners.
While
REindicates
and FPM
push
the
elite
on different
directions
regarding
property
rights
On the other the
hand,
RE
that
they
also
reduce
tax revenues,
received
byfor
politically
powerful
institutions,
elite
has
incentives
to
impose
high
taxes
on directions
peasants
both
tax
revenue
and
landowners.
While
RE
and
FPM
push
the
elite
on
different
regarding
property
rights
to
get more labour
from
them.
this
reason,
as noted
proposition,
thetax
desired
level
of
institutions,
the
elite
has
incentives
to impose
taxes in
onthe
peasants
both
for
revenue
and
landowners.
While
RE
and
FPMFor
push
the
elitehigh
on
different
directions
regarding
property
rights
to
get more
labour
from
them.
For
this
reason,
as noted
in
the
proposition,
thetax
desired
level
of
institutions,
the
elite
has
incentives
to
impose
high
taxes
on
peasants
both
for
revenue
and
Laf
f
er
COM
RE
exceed
the RE
taxation,
τSRE in
=the
τ Laf
. A
high
tax
rate,
in
turn,
taxation
τSCOM
to
get more
labour
from
For desired
this
reason,
as noted
proposition,
the
desired
level
of
institutions,
the will
elite
has them.
incentives
to impose
high
taxes
on
peasants
both
for
tax
revenue
and
f er . A
will
exceed
the RE
desired
taxation,
τSRE in
=the
τ Laf
high
tax
rate,
in
turn,
taxation
τSCOM
to
get
more
labour
from
them.
For
this
reason,
as
noted
proposition,
the
desired
level
of
f
er
resolves
the
ambivalence
over
property
rights:
it
compels
the
elite
to
focus
on
extracting
peasants’
τ Laf
. A highthe
taxdesired
rate, in
turn,
will from
exceed
the RE
desired
taxation,
τSRE in=the
taxation
τSCOM
to
get
more
labour
them.
For
this
reason,
as
noted
proposition,
level
of
f
er
resolves
the
ambivalence
overthe
property
rights:taxation,
it compels
the=elite
to focus
on extracting
peasants’
will
exceed
RE
desired
τ
τ
.
A
high
tax
rate,
in
turn,
taxation
τ
S
S
revenue
from
taxation
and
thus
to be
directly
in=elite
increasing
peasants’
by
resolves
ambivalence
over
property
rights:
itinterested
compels
the
focus
on extracting
will exceed
the
RE
desired
taxation,
τSRE
τ Laftof er
. A
high
taxproductivity
rate,peasants’
in turn,
taxationthe
τSCOM
revenue
from
taxation
and
thus
to be
directly
interested
in elite
increasing
peasants’
productivity
by
resolves
the
ambivalence
over
property
rights:
it
compels
the
to
focus
on
extracting
peasants’
selecting
good
propertyand
rights
institutions.
revenue
from
taxation
thus
to be rights:
directlyitinterested
in elite
increasing
peasants’
productivity
by
resolves
the
ambivalence
over
property
compels
the
to
focus
on
extracting
peasants’
selectingfrom
goodtaxation
propertyand
rights
institutions.
revenue
thus
to
be
directly
interested
in
increasing
peasants’
productivity
by
The intuition
of theand
preceding
paragraph
also
has an in
interesting
corollary.
Ifproductivity
the exogenous
selecting
goodtaxation
property
rights
institutions.
revenue
from
thus
to
be
directly
interested
increasing
peasants’
by
The intuition
of the rights
preceding
paragraph also has an interesting corollary. If the exogenous
selecting
good property
institutions.
limit
to
taxation
τ̄
is
low
enough,
then
the
elite’s
FPM
incentives
will
again
prevail,
because
tax
The
intuition
of
the
preceding
paragraph
also
has
an
interesting
corollary.
If
the
exogenous
selecting
good property
rights
institutions.
limit
to taxation
τ̄ofisthe
low
enough,
then
the elite’s
incentives
willcorollary.
again prevail,
tax
The
intuition
preceding
paragraph
also FPM
has
an
interesting
If words,
thebecause
exogenous
revenues
form
a
relatively
unimportant
component
of their
consumption.
In other
without
limit
to taxation
τ̄ofisthe
lowpreceding
enough, then
the elite’s
FPM
incentives
willcorollary.
again
prevail,
because
tax
The
intuition
paragraph
also
has
an
interesting
If
the
exogenous
revenues
form a relatively
unimportant
component
of their
consumption.
In other
words,
without
limit
to taxation
τ̄ of
is migration,
low enough,
then
the
FPM
incentives
prevail,
because
tax
an
effective
threat
the
casecomponent
forelite’s
bad property
rights
inwill
theagain
subsistence
sector
is only
revenues
form
a relatively
unimportant
of their
consumption.
In other
words,
without
limit
to
taxation
τ̄
is
low
enough,
then
the
elite’s
FPM
incentives
will
again
prevail,
because
tax
an
effective
threat
of
migration,
the
case
for
bad
property
rights
in
the
subsistence
sector
is
only
revenues
form
a relatively
unimportant
component
of
their(low
consumption.
In other words, without
compelling
if
the
elite
has
limited
ability
to
tax
the
sector
τ̄
).
an
effective
threat
of migration,
the casecomponent
for bad property
rights
in the subsistence
sectorwithout
is only
revenues
form
a relatively
unimportant
of
their(low
consumption.
In other words,
compelling
ifthreat
the
elite
has limited
ability
to
tax
sector
τ̄ ).in the subsistence
an
effective
of migration,
the
case
for
badthe
property
rights
sector
is only
Proposition
3
also
shows
that
when
the
urban
wage
is
high
and
the
threat
of
migration
effective,
compelling
ifthreat
the elite
has limitedthe
ability
to
tax
the
sector (low
τ̄ ).in the subsistence sector is only
an effective
of
migration,
case
for
bad
property
rights
Proposition
3 also
shows
that when
thetourban
wage
is high
and
threat of migration effective,
compelling
if the
elite
has limited
ability
tax The
the
sector
(low
τ̄ ).the
the
prevalence
of3 also
RE incentives
less
obvious.
reason
forand
this
alsothreat
follows
from the preceding
Proposition
shows
thatiswhen
thetourban
wage
is high
the
of migration
effective,
compelling
if
the
elite
has
limited
ability
tax
the
sector
(low
τ̄
).
the Proposition
prevalence of3 also
RE incentives
iswhen
less obvious.
The
reason
forand
thisthe
alsothreat
follows
from the preceding
shows
that
the
urban
wage
is
high
of
migration
effective,
discussion.
In of
particular,
recall
that
with
an The
effective
threat
of the
migration,
increasing
taxes on
the
prevalence
RE incentives
iswhen
less obvious.
reason
forand
this
alsothreat
follows
from the preceding
Proposition
3
also
shows
that
the
urban
wage
is
high
of
migration
effective,
discussion.
In of
particular,
recallis that
with an The
effective
threat
of migration,
increasing
taxes on
the
prevalence
RE
incentives
less
obvious.
reason
for
this
also
follows
from
the
preceding
peasants’
income
is noincentives
longer
useful
from
theanpoint
of
view
of FPM.
As follows
Proposition
1the
established,
discussion.
In of
particular,
recall
that
with
effective
threat
of migration,
increasing
taxes on
the
prevalence
RE
is
less
obvious.
The
reason
for
this
also
from
preceding
peasants’
is no longer
useful
from
theanpoint
of view
of FPM.
As Proposition
1 established,
discussion.income
In particular,
that
with
effective
threat
of migration,
increasing
taxes
on
increasing
taxes
reduces
therecall
attractiveness
of an
rural
areas
and
theFPM.
ensuing
decreases
labour
peasants’
income
is no longer
useful
from
the
point
of view
of
As migration
Proposition
1 established,
discussion.
In
particular,
recall
that
with
effective
threat
of
migration,
increasing
taxes
on
increasing
taxes reduces
the attractiveness
of rural
areas
and of
theFPM.
ensuing
decreases
labour
peasants’
income
is noand
longer
useful
fromThus,
the
point
of view
As migration
Proposition
1noestablished,
input
for
landowners
their
profits.
we
can
no
longer
conclude,
as
in
the
migration
increasing
taxes
reduces
the
attractiveness
of
rural
areas
and
the
ensuing
migration
decreases
labour
peasants’
income is noand
longer useful
fromThus,
the point
of view
of FPM.
As Proposition
1noestablished,
input
for landowners
profits.
we areas
can
no
longer
conclude,
as in the
migration
increasing
taxes reduces thetheir
attractiveness
of rural
and
the ensuing
migration
decreases
labour
input
for
landowners
and
their
profits.
Thus,
we
can
no
longer
conclude,
as
in
the
no migration
increasing taxes reduces the attractiveness of rural areas and the ensuing migration decreases
labour
input for landowners and their profits. Thus, we can no longer conclude, as in the no migration
input for landowners and their profits. Thus, we can no longer conclude, as in the no migration
19
19
19
19
1921
2.
2.
2.
2.
2.
case, that a high level of taxation prevails, inducing the elite to focus on RE-type policies with
case, that a high level of taxation prevails, inducing the elite to focus on RE-type policies with
optimal
property
institutions.
case,
that
a high rights
level of
taxation prevails, inducing the elite to focus on RE-type policies with
optimal
property
rights
institutions.
case,
that
a
high
level
of
taxation prevails,
inducing
theforce
elite migration,
to focus on
policies
with
Inthat
fact,
sufficiently
concerned
with avoiding
labour
theRE-type
elite choose
minimal
optimal
property
rights
institutions.
case,
aif
high
level of
taxation prevails,
inducing
theforce
elite migration,
to focus on
RE-type
policies
with
In
fact,
if
sufficiently
concerned
with
avoiding
labour
the
elite
choose
minimal
optimal
property
rights3 institutions.
taxation.
Proposition
establishes
that
the
elite
will
be
“sufficiently”
concerned
with
migration,
In fact,
if sufficiently
concerned with avoiding labour force migration, the elite choose minimal
optimal
property
rights3 institutions.
taxation.
Proposition
establishes
that avoiding
the elite labour
will be force
“sufficiently”
concerned
with
migration,
In fact,
if sufficiently
concerned
with
migration,
the elite
choose
minimal
relative
to
tax
revenues,
if
peasants own
Since
land
for peasants
means
more
land for
taxation.
Proposition
3 establishes
thatlittle
the land.
elite labour
will
beless
“sufficiently”
concerned
with
migration,
In
fact,
if
sufficiently
concerned
with
avoiding
force
migration,
the
elite
choose
minimal
relative
to
tax
revenues,
if
peasants
own
little
land.
Since
less
land
for
peasants
means
more
land for
taxation.
Proposition
3
establishes
that
the
elite
will
be
“sufficiently”
concerned
with
migration,
the elite,tothis
only 3reduces
the own
importance
of revenues
from
of peasants’
production,
relative
tax not
revenues,
ifestablishes
peasants
little
land.
Since
less
landtaxation
for peasants
means
more
land for
taxation.
Proposition
that
the
elite
will
be
“sufficiently”
concerned
with
migration,
the elite,tothis
only reduces
the own
importance
of revenues
taxation
of peasants’
production,
relative
tax not
revenues,
peasants
little land.
Since
lessfrom
land
for peasants
means
more
land
for
but elite,
alsoto
increases
that reduces
ofif
profits
in own
landowners’
which
are taxation
increasing
the amount
of rural
the
this
not
only
the
importance
offarms
revenues
from
ofinpeasants’
production,
relative
tax
revenues,
if
peasants
little
land.
Since
less
land
for
peasants
means
more
land
for
but elite,
also increases
that reduces
of profitsthe
in importance
landowners’offarms
whichfrom
are taxation
increasingofinpeasants’
the amount
of rural
the
this
not
only
revenues
production,
labour.
factor
manipulation
incentives
dominate
and
the desired
tax amount
rateproduction,
is zero.
A
but
also Thus,
increases
thatprice
of profits
in importance
landowners’
whichfrom
are
increasing
the
of rural
the
elite,
this not
only
reduces
the
offarms
revenues
taxation
ofinpeasants’
labour.
Thus,
factor
price
manipulation
incentives
dominate
and
the desired
tax amount
rate is zero.
A
but
also
increases
that
of
profits
in
landowners’
farms
which
are
increasing
in
the
of
rural
zero also
tax Thus,
rate
obviously
implies
noinincentives
to adopt
good
property
institutions
labour.
factor
price
manipulation
incentives
dominate
andincreasing
therights
desired
tax amount
rate to
is increase
zero.
A
but
increases
that
of
profits
landowners’
farms
which
are
in
the
of
rural
zero tax Thus,
rate obviously
implies
no incentives
to adopt
good property
rights
institutions
to
increase
labour.
factor
price
manipulation
incentives
dominate
and
the
desired
tax
rate
is
zero.
A
taxable
In the
resulting
equilibrium,
avoid
migration
and
extract
more
labour
from
zero
tax income.
rate obviously
implies
no incentives
to to
adopt
good
property
rights
institutions
to
increase
labour.
Thus,
factor
price
manipulation
incentives
dominate
and
the
desired
tax
rate
is
zero.
A
taxable
In theimplies
resulting
equilibrium,
to
avoid
migration
extract
more labour
from
zero
tax income.
rate
obviously
no incentives
to
adopt
good
propertyand
rights
institutions
to increase
peasants,
the
elite
thus
selects
poor
property
rights
institutions.
taxable
income.
In
the
resulting
equilibrium,
to
avoid
migration
and
extract
more
labour
from
zero
tax rate
implies poor
no incentives
adopt
good property rights institutions to increase
peasants,
the obviously
eliteInthus
propertyto
rights
institutions.
taxable
income.
theselects
resulting
equilibrium,
to
avoid
migration
extract Due
moretolabour
from
However,
if
peasants
own
enough
land,
the
elite
face
the reverseand
situation.
sufficiently
peasants,
the
elite
thus
selects
poor
property
rights
institutions.
taxable
income.
In the resulting
equilibrium,
to
avoid
migration
and
extract Due
moretolabour
from
However,
if
peasants
own
enough
land,
the
elite
face
the
reverse
situation.
sufficiently
peasants,
the elite
thus
selects
poor property
rights institutions.
large
peasant
income
and
sufficiently
small
landowner
profit
from
their
own
farms,
the
elite
focus
However,
peasants
own enough
land, therights
elite institutions.
face the reverse situation. Due to sufficiently
peasants,
the ifelite
thus
selects
poor property
large
peasant
income
and
sufficiently
small the
landowner
profit
from
their
own farms,
elite focus
However,
iftaxation
peasants
own
enough
land,
eliteThus,
face
the
reverse
situation.
Due the
to sufficiently
on
increasing
and
not
on
reducing
wages.
in this
case,
peasant
property
rights
are
large
peasant ifincome
andown
sufficiently
small the
landowner
profit
from
their
own farms,
the
elite
focus
However,
peasants
enough
land,
elite
face
the
reverse
situation.
Due
to
sufficiently
on increasing
taxation
andsufficiently
not on reducing
wages. Thus,
in this
case,
peasant
property
rights
are
large
peasant
income
and
small
landowner
profit
from
their
own
farms,
the
elite
focus
optimal
and taxation
isand
positive.
on increasing
taxation
not on reducing
wages. Thus,
in this
case,
peasant
property
rights
are
large
peasant
income
and
sufficiently
small
landowner
profit
from
their
own
farms,
the
elite
focus
optimal
and taxation
isand
positive.
on
increasing
taxation
not
on reducing
wages.
Thus,
in
this
case,
peasant
property
rights
are
COM
=
0,
RE
has
no
Turning
to
comparative
static
results,
over
the
range
t
∈
(0,
t]
where
τ
optimal
and taxation
isand
positive.
on
increasing
taxation
not
on reducing
wages.
in
this
case,
peasant
property
rights
are
COM
=
0,
RE
has
no
Turning
to
comparative
static
results, over
the Thus,
range
t
∈
(0,
t]
where
τ
optimal
and
taxation
is
positive.
withτ COM
µFF PP M
thehas
FPM
bearing
on
the
desired
level
of
property
rights.
µCOM
Turning
to
comparative
static
results,
over Hence,
the range
t ∈coincides
(0, t] where
=from
0, RE
no
optimal
and
taxation
is
positive.
COM
M
COM
coincides
withτ µF P M=from
thehas
FPM
bearing
on the
desired
level of
property
rights.
Hence,
µCOM
Turning
to
comparative
static
results,
over
the
range
t
∈
(0,
t]
where
0,
RE
Proposition
1,
and
satisfies
same
comparative
static
results.
Similarly,
over
range
t∈
[t̄, no
T]
COM
coincides
with
µF Pthe
from
the
FPM
bearing
on the
desired
level the
of
property
rights.
Hence,
µCOM
=
0,
RE
has
Turning
to
comparative
static
results,
over
the
range
t
∈
(0,
t]
where
τ
M
Proposition
1, COM
and
satisfies
the
same comparative
staticµresults.
Similarly,
over
the range
t ∈ FPM
[t̄, no
T]
coincides
with
µ
from
the
bearing
on
the
desired
level
of
property
rights.
Hence,
COM
RE
= 1level
implies
that τcomparative
coincides
exactly
with
τ RE =with
1−
α
Proposition
the
fact on
thatthe
COM
Fof
P
M
Proposition
1,µCOM
and
satisfies
the
same
static
results.
Similarly,
over
the
range
t ∈ FPM
[2t̄,for
T]
coincides
µ
from
the
bearing
desired
of
property
rights.
Hence,
µ
COM
= 1 implies
that τcomparative
coincides
exactly
withSimilarly,
τ RE = 1 −
α ofthe
Proposition
2t̄,for
the
fact that1,µCOM
Proposition
and
satisfies
the
same
static
results.
over
range
t
∈
[
T]
COM
the
RE case.
perfect
rightsstatic
and
positive
the
rural
wagetw∈E[2t̄,will
= 1with
implies
thatproperty
τcomparative
coincides
exactly
withmigration
τ RE = 1 −
α of
Proposition
for
fact
that1,µIndeed,
Proposition
and satisfies
the
same
results.
Similarly,
over
the
range
T]
COM
COM
will
the
RE
case.
Indeed,
with
perfect
property
rights
and
positive
migration
the
rural
wage
w
E 2 for
= 1 implies
that wage
τ COMwcoincides
exactly
with
τ REfor=factor
1 − α price
of Proposition
fact thattoµCOM
,
eliminating
any
scope
manipulation.
be identical
the
exogenous
urban
U
will
the
RE
case.
Indeed,
with
perfect
property
rights
and
positive
migration
the
rural
wage
w
E 2 for
= 1 implies
that wage
τ
exactly
τ for=factor
1 − α price
of Proposition
fact thattoµ the exogenous
, eliminating
anywith
scope
manipulation.
be identical
urban
wcoincides
U rights
the
RE case. Indeed,
with perfect
property
and
positive
migration
the rural
wagevariation
wE will
Nonetheless,
the
comparative
static
results
of
the
combined
problem
are
richer
because
, eliminating
any scope
for factor
manipulation.
be identical
the exogenous
urbanproperty
wage wU rights
the
RE case.toIndeed,
with perfect
positive
migration
the price
rural
wagevariation
wE will
Nonetheless,
theexogenous
comparative
static
results
theand
combined
problem
richer
because
eliminating
any
scope with
forare
factor
price
manipulation.
be the
identical
to the
urban
wage
wU , of
in
model’s
parameters
may
move
the
economy
from
a
situation
t
∈
(0,
t]
to
one
in
which
Nonetheless,
theexogenous
comparative
static
results
the combined
problem
richer
because
variation
eliminating
scope with
forare
factor
price
be the
identical
to the
urban
wage
wU , of
in
model’s
parameters
may
move
the
economy
from
a any
situation
t richer
∈ (0,
t]because
tomanipulation.
one variation
in which
Nonetheless,
the
comparative
static
results
of
the
combined
problem
are
tin∈the
[t̄, model’s
T ]. More
specifically,
they
predict
a non-monotonic
relationship
quality
rural
parameters
may
move
the
economy
a situation
with
∈ (0, t]because
to
one variation
inofwhich
Nonetheless,
the
comparative
static
results
of thefrom
combined
problem
aretbetween
richer
t ∈the
[t̄, model’s
T ]. More
specifically,
they
predict
a non-monotonic
relationship
between
quality
ofwhich
rural
to
one
in
in
parameters
may
move
the
economy
from
a
situation
with
t
∈
(0,
t]
and
land in
themove
hands
of
When
peasants
hold
relatively
little
land
tproperty
∈the
[t̄, model’s
T ].rights
More
specifically,
they
predict
apeasants.
non-monotonic
relationship
between
quality
ofwhich
rural
in
parameters
may
the
economy
from
a
situation
with
t
∈
(0,
t]
to
one
in
rights
and
land in they
the hands
ofapeasants.
Whenrelationship
peasants hold
relatively
little
land
tproperty
∈
[
t̄,
T
].
More
specifically,
predict
non-monotonic
between
quality
of
rural
∈[t̄,(0,
t]),
obtaining
more
increases
the
rural elite’s
incentives
reduce
property
rights
property
rights
and
land
in land
the hands
ofapeasants.
Whenrelationship
peasants to
hold
relatively
little
land
t(t
∈
T
].
More
specifically,
they
predict
non-monotonic
between
quality
of
rural
(t
∈ (0, t]),
obtaining
more
land
increases
the rural elite’s
incentives
to
reduce
property
rights
property
rights
and
land
in
the
hands
of
peasants.
When
peasants
hold
relatively
little
land
in
order
to
obtain
cheap
labour.
However,
if
land
isincentives
allocated
to
the
peasants
suchrights
that
(t
∈ (0, t]),
obtaining
more
land
increases
theenough
rural elite’s
reduce
property
property
rights
and
land
in
the
hands
of
peasants.
When
peasants
hold
relatively
little
land
in
order
to obtain
cheap
labour.
However,
if
enough
land isincentives
allocated to the
peasants
suchrights
that
obtaining
more
land
increases
the
rural
elite’s
reduce
property
(t
∈
(0,
t]),
t(t∈order
[t̄,(0,
T ],t]),
theobtain
elite promote
optimal
propertyif
rights
institutions
to increase
tax peasants
revenues.
in
to
cheap
labour.
However,
enough
land isincentives
allocated
to the
suchrights
that
∈
obtaining
more
land
increases
the
rural
elite’s
reduce
property
t ∈order
[t̄, T ],to
theobtain
elite promote
optimalHowever,
propertyifrights
institutions
to increase
tax peasants
revenues. such that
in
cheap
labour.
enough
land
is
allocated
to
the
This
is interesting
given
its implications
for the
much-debated
of inequality
tin∈order
[t̄, T ],prediction
theobtain
elite promote
optimal
property
institutions
to increase
taximpact
revenues.
to
cheap
labour.
However,
ifrights
enough
land
is allocated
to the
peasants
such that
This
is interesting
given
its implications
for the
much-debated
impact
of inequality
[t̄, T ],prediction
the elite(for
promote
optimal
property
rights
institutions
to
increase
tax
revenues.
ton∈ development
reviews,
see
Bénabou
(1996)
and
Aghion
et
al.
(1999)).
In
particular,
this
This
prediction
is
interesting
given
its
implications
for
the
much-debated
impact
of
inequality
ton∈ development
[t̄, T ], the elite(for
promote
optimal
property(1996)
rights and
institutions
to
tax revenues.
reviews,
seegiven
Bénabou
Aghion
et increase
al. (1999)).
In particular,
this
This
prediction
is
interesting
its
implications
for
the
much-debated
impact
of
inequality
result
highlights
that
ifinteresting
the relatively
poor
(here,
peasants)
are
sufficiently
wealthy,
then
elites
on development
(foris reviews,
seegiven
Bénabou
(1996)the
and
Aghion
et al.
(1999)).impact
In particular,
this
This
prediction
its
implications
for
the
much-debated
of
inequality
result
highlights that
if the relatively
poor (here,
peasants)
are
sufficiently
then elites
on
development
(for
reviews,
see
Bénabou
(1996)the
and
Aghion
et productivity,
al.
(1999)). wealthy,
In
particular,
this
may
have
weaker
incentives
to
impose
distortions
that
affect
their
as
they
may
move
result
highlights that
if the relatively
poor (here,
peasants)
are
sufficiently
then elites
on
(for
reviews,
Bénabou
(1996)the
and
Aghion
et al.
(1999)). wealthy,
In
particular,
this
maydevelopment
have
weakerthat
incentives
to see
impose
distortions
that
affect
their
as they
may move
result
highlights
if the relatively
poor
(here,
the
peasants)
areproductivity,
sufficiently
wealthy,
then
elites
from
emphasizing
impoverishing
them
in
order
to
exploit
their
labour,
to
promote
their
prosperity
may have
weakerthat
incentives
to imposepoor
distortions
thatpeasants)
affect their
as they then
may move
result
highlights
if the relatively
(here,
areproductivity,
sufficiently
wealthy,
elites
from have
emphasizing
impoverishing
them distortions
in order
to the
exploit
their
labour,
to promote
prosperity
may
weaker
incentives
toThis
impose
that
affect
their
productivity,
as their
they
may move
in
order
to
tax
the
proceeds.
particular
political
economy
channel
linking
lower
inequality
to
from have
emphasizing
impoverishing
them distortions
in order to that
exploit
their
labour,
to promote
prosperity
may
impose
affect
their
productivity,
as their
they
may move
in order
toweaker
tax theincentives
proceeds.toThis
particular
political
economy
channel
linking
lower
inequality
to
from
emphasizing
impoverishing
them
in
order
to
exploit
their
labour,
to
promote
their
prosperity
better
institutions
for
development
caninplausibly
arise
in their
other labour,
contexts
too.
in order
to tax theimpoverishing
proceeds.
This
particular
political
economy
channeltolinking
lower
inequality
to
from
emphasizing
them
order
to
exploit
promote
their
prosperity
better
development
can plausibly
ariseeconomy
in other contexts
too. lower inequality to
in
orderinstitutions
to tax the for
proceeds.
This particular
political
channel linking
better
development
can plausibly
ariseeconomy
in other contexts
too. lower inequality to
in
orderinstitutions
to tax the for
proceeds.
This particular
political
channel linking
better institutions for development can plausibly arise in other contexts too.
better institutions for development can plausibly arise in other contexts too.
20
20
20
20
20
22
5 Extension: endogenous urban wages and the industrial elite
5
Extension:
endogenous
urban
wages
and
the
industrial
elite
5
Extension:
endogenous
urban
wages
and
the
industrial
elite
5
Extension:
endogenous
urban
wages
and
the
industrial
elite
Thus
far the role of theendogenous
urban-industrial urban
elite has been
ignored,
adopting
the simplified assumption
5
Extension:
wages
and
the
industrial
elite
Thus
far the role of theendogenous
urban-industrial urban
elite has been
ignored,
adopting
the simplified assumption
5
Extension:
wages
and
the
industrial
elite
Thus
farpolitical
the role power
of the lies
urban-industrial
has
beenelite.
ignored,
adopting
theurban
simplified
that all
in the hands elite
of the
rural
Moreover,
since
wagesassumption
have been
Thus
farpolitical
the role power
of the lies
urban-industrial
has
beenelite.
ignored,
adopting
theurban
simplified
that
all
in the hands elite
of the
rural
Moreover,
since
wagesassumption
have been
Thus
farpolitical
the
role power
of the
urban-industrial
elite
has
been
ignored,
adopting
theurban
simplified
that
all
lies
in
the
hands
of
the
rural
elite.
Moreover,
since
wagesassumption
have
assumed
exogenous
for
convenience,
there
are
no
effects
of
any
of
the
model
parameters
onbeen
the
Thus
far
the
role
of
the
urban-industrial
elite
has
been
ignored,
adopting
the
simplified
assumption
that
all
political
power
lies
in
the
hands
of
the
rural
elite.
Moreover,
since
urban
wages
have
assumed
exogenous
for
convenience,
there
are
no
effects
of
any
of
the
model
parameters
onbeen
the
that
all
political
power
lies
in
the
hands
of
the
rural
elite.
Moreover,
since
urban
wages
have
been
assumed
exogenous
for lies
convenience,
there
are rural
no effects
of
any of the
model
parameters
onbeen
the
urban
economy.
that
all
political
power
in
the
hands
of
the
elite.
Moreover,
since
urban
wages
have
assumed
exogenous
for
convenience,
there
are
no
effects
of
any
of
the
model
parameters
on
the
urban
economy.
assumed
exogenous
for
convenience,
there
are
no
effects
of
any
of
the
model
parameters
on
the
urban
economy.
In
this
section,
I
briefly
discuss
the
way
the
urban
and
the
rural
elites’
interests
can
converge
or
assumed
exogenous
for convenience,
there
are urban
no effects
of any
ofelites’
the model
parameters
on the
urban
economy.
In
this
section,
I
briefly
discuss
the
way
the
and
the
rural
interests
can
converge
or
urban
economy.
In this
I brieflyrights
discuss
way
and by
theexamining
rural elites’
can
converge
or
diverge
on section,
weak property
on the
land.
Tothe
do urban
so, I start
theinterests
plausibly
more
realistic
urban
economy.
In this
I brieflyrights
discuss
way
and by
theexamining
rural elites’
can
converge
or
diverge
on section,
weak property
on the
land.
Tothe
do urban
so, I start
theinterests
plausibly
more
realistic
In this
I briefly
discuss
way
and by
theexamining
rural
elites’
interests
can
converge
or
diverge
on section,
weak
rights
on the
land.
Tothe
do urban
so, I start
the
plausibly
more
realistic
formulation
thatproperty
urban
wages
fall
with
rural-urban
migration,
which
increases
labour
supply
in
In
this
section,
I
briefly
discuss
the
way
the
urban
and
the
rural
elites’
interests
can
converge
or
diverge
on weak
property
rightsfall
on land.
To do so, I start
by examining
the
plausibly
moresupply
realistic
formulation
that
urban
wages
with
rural-urban
migration,
which
increases
labour
in
diverge
on
weak
property
rights
on
land.
To
do
so,
I
start
by
examining
the
plausibly
more
realistic
formulation
that
urban
wages
with
migration,
which
increases
supply
in
the cities.
To
make
things
as fall
simple
as rural-urban
possible,
suppose
that
the urban
wage labour
is now
given
by
diverge
on
weak
property
rights
on
land.
To
do
so,
I
start
by
examining
the
plausibly
more
realistic
formulation
that
urban
wages
with
migration,
increases
in
the cities. To
make
things
as fall
simple
as rural-urban
possible, suppose
that which
the urban
wage labour
is now supply
given by
formulation
that
urban
fall
rural-urban
migration,
increases
in
the
cities. To
make
things
as =
simple
possible,
suppose
that
the
wage labour
isinnow
given
by
wUwith
−as
κm,
for some
constant
κ. which
Theurban
main
change
thesupply
analysis
following
function,
wwages
U (m)
formulation
that
urban
wages
fall
with
rural-urban
migration,
which
increases
labour
supply
in
the
cities. Tofunction,
make things
as =
simple
as
possible,
suppose
that
the
urban
wage isinnow
given
by
(m)
w
−
κm,
for
some
constant
κ.
The
main
change
the
analysis
the
following
w
U
U
the
cities.
To
make things
as
simple
as
possible,
suppose
that
the
urban
wage
is
now
given
by
(m)
=
w
−
κm,
for
some
constant
κ.
The
main
change
in
the
analysis
the
following
function,
w
comes
when
expressing
the
value
of
urban
areas,
now
given
by:
U as simple
U
the
cities.
make things
possible,
suppose
the
wage isinnow
by
=w
−as
κm,
for some
constant
Theurban
main change
thegiven
analysis
the following
function,
w
U (m)
comes
whenTo
expressing
the
value
ofUurban
now
given that
by:κ.
=w
− κm,areas,
for some
constant
κ. The main change in the analysis
the following
function, w
U (m)
U urban
comes
when
expressing
the
value
of
areas,
now
given
by:
=w
− κm,areas,
for some
κ. The main change in the analysis
the following
function, w
U (m)
comes
when expressing
the
value
ofUurban
nowconstant
given
t by:
comes when expressing the value of urban
areas,
now
given
by:
=
w
−
κm
+
µ
V
r.
U
U
t
comes when expressing the value of urban
t r.by:
w − now
κm +given
µL
VU =areas,
t r.
VU = wU
U − κm + µ L
t r. unaltered, as well as those determin= wU − κm +remain
µL
VU consumption
The expressions for peasant and elite
t r.
=
w
−
κm
+
µ
V
L
U consumption
U
The expressions for peasant and elite
remain
as well as those determin=
wU − κmthe
+remain
µvalue
VU consumption
L r. unaltered,
and
elite
unaltered,
well as
determining The
rentsexpressions
and wagesfor
in peasant
the rural
areas.
Similarly,
of the ruralasareas
is those
written
just as
L
The
expressions
for
peasant
and
elite
consumption
remain
unaltered,
as
well as
determining The
rentsexpressions
and wagesfor
in peasant
the rural
areas.
Similarly, theremain
value unaltered,
of the ruralasareas
is those
written
just as
and
elite
consumption
well
as
those
determining The
rents
and
wages
in peasant
the rural
areas.
Similarly,
theremain
value
of the rural
areas
is there
written
just as
before.
The
key
change
naturally
concerns
the equation
for migration.
Like
before
is
positive
expressions
for
and
elite
consumption
unaltered,
as
well
as
those
determining
rents
and
wages
in naturally
the rural concerns
areas. Similarly,
the value
of the rural
written
just as
before.
The
key
change
the equation
for migration.
Likeareas
beforeis
there
is positive
ing
rents
and
wages
in
the
rural
areas.
Similarly,
the
value
of
the
rural
areas
is
written
just
as
before.
The
key
concerns
the equation
for migration.
Likeareas
beforeis there
is positive
VRnaturally
, which
corresponds
to:the value
migration
until
Vchange
U = in
ing
rents
and
wages
the
ruralnow
areas.
Similarly,
of the rural
written
just as
before.
The
key
change
naturally
concerns
the
equation
for
migration.
Like
before
there
is
positive
=
V
,
which
now
corresponds
to:
migration
until
V
U
R
before.
The
key Vchange
concerns
the equation
for migration. Like before there is positive
, which now
corresponds
to:
migration
until
U = VRnaturally
before.
The
key Vchange
concerns
the equation
, which now
corresponds
to: t for migration. Like before there is positive
migration
until
U = VRnaturally
corresponds
to: t r + κm.
migration until VU = VR , which wnow
wE = (1 − µ)
U −corresponds
to: t m r + κm.
migration until VU = VR , which wnow
U − wE = (1 − µ) L −
wU − wE = (1 − µ) L −t m r + κm.
t m r + κm.wE is also a function of m), and
wUthe
−w
µ) L −
E = (1 −
Hence, m is (implicitly) given by
equation
above
(remember
t m r + κm.w is also a function of m), and
wUthe
−w
µ) L −
E = (1 −
Hence, m is (implicitly) given by
equation
above
(remember
E
wUthe
− zero
w
µ)less
L−
m r +wκm.
E =if (1
Hence,
is (implicitly)
by
equation
(remember
is µ)(t/L)r
also a function
of 0.m),
and
is
than
at m =
Using
just
likembefore
migrationgiven
is equal
to
wU−above
E −
E +w(1
L
−
m
Hence,
m
is
(implicitly)
given
by
the
equation
above
(remember
w
is µ)(t/L)r
also a function
of 0.m),
and
E −
is less(remember
than wE +w(1
at m =
Using
just
likembefore
migrationgiven
is equal
to zero
if wUabove
is
also
a
function
of
m),
and
Hence,
is
(implicitly)
by
the
equation
E − µ)(t/L)r at m = 0. Using
is
less
than
w
+
(1
just
like
before
migration
is
equal
to
zero
if
w
the
functional
form
assumptions,
equilibrium
migration
is
thus,
U
E
is µ)(t/L)r
also a function
of 0.m),
and
Hence,
is (implicitly)
given
by equilibrium
the
equation
E −
is less(remember
than
wE +w(1
at m =
Using
just
likembefore
migration
is equal
to zero
if wmigration
Uabove
the
functional
form
assumptions,
is
thus,
wE + (1 − µ)(t/L)r at m = 0. Using
just
like beforeform
migration
is equalequilibrium
to zero if wmigration
U is less than
the
functional
assumptions,
is
thus,
if wmigration
wE + (1 − 1µ)(t/L)r
at m = 0. Using
just
like beforeform
migration
is equal
to
1−αzero
U is less than
the functional
assumptions,
equilibrium
is thus,
T̃ 1−α
the functional form assumptions,
equilibrium
migration
istthus,
)
µ]
1
−
α
[(1
−
τ
1−α 1 S
T̃ the functional
equilibrium
− µ) 1 − αistthus,
(17)
m =form
0 if wassumptions,
1−α 1 + (1migration
1 ≡ w̄ (τS , µ) ,
U < AE
[(1 − τ ) µ] 1−α
1−α 1 + (1 − µ) 1 −
L
α α t [(1 − τT̃SS ) µ] 1−α
1 ≡ w̄ (τ , µ) ,
T̃
(17)
m = 0 if wU < AE S
1
≡ w̄ (τS , µ) ,
(1 − µ) 1 −
(17)
m = 0 if w < AE T̃
L 1−α
α α t [(1 − τT̃S ) µ] 1−α
11 +
1−α
1−α
1 ≡ w̄ (τ , µ) ,
)
µ]
t
[(1
−
τ
T̃
1
−
α
+
(1
−
µ)
m = 0 if wU
<
A
(17)
L
α
S
U
E
S
T̃
1−α
otherwise, m
m=
satisfies
≡ w̄ (τS , µ) ,
1 + (1 − µ) 1 −
0 if wU < AE T̃
(17)
L
α α t [(1 − τT̃S ) µ]
≡ w̄ (τS , µ) ,
1 + (1 − µ) α
(17)
0 if wU < AE L
otherwise, m
m=
satisfies
T̃
L α
otherwise, m satisfies
T̃
1−α
1
otherwise, m satisfies
T̃ 1−α 1 − α t [(1 − τS ) µ] 1−α
otherwise, m satisfies
1 (18)
wU = AE otherwise, m satisfies
1−α 1 + (1 − µ) 1 − α t [(1 − τS ) µ] 1−α
1 + κm.
T̃ α α t [(1 − τT̃S ) µ] 1−α
1 + κm.
T̃ m 1−α 1 + (1 − µ) 1 −
(18)
wU = AE L −
1
T̃ m 1−α 1 + (1 − µ) 1 −
+ κm.
(18)
wU = AE L −
α α t [(1 − τT̃S ) µ] 1−α
1−α
1 + κm.
T̃ m 1−α 1 + (1 − µ) 1 −
(18)
wU = AE L −
α α t [(1 − τT̃S ) µ] 1−α
T̃ m
− τT̃S ) µ]
+ κm.
(18)
1 + (1 − µ) 1 −
wU = AE L −
α α t [(1
Equation (17),
determining
the
conditions
under
which
there
would
be
positive
migration,
is
+ κm.
(18)
1 + (1 − µ) α
wU = AE L − m
T̃
L
−
m
α
Equation (17), determining the conditions under which thereT̃would be positive migration, is
Equation
(17),(equation
determining
theEquation
conditions
under
which
there
would
be positive
is
exactly
as before
(10)).
(18),
on the
other
hand,
which
describesmigration,
equilibrium
Equation
(17),(equation
determining
theEquation
conditions
under
which
there
would
be positive
migration,
is
exactly
as
before
(10)).
(18),
on
the
other
hand,
which
describes
equilibrium
Equation
(17),(equation
determining
thethe
conditions
under
which
there
would
be positive
migration,
is
exactly
as
before
(10)).
Equation
(18),
on
the
other
hand,
which
describes
equilibrium
positive
migration,
is
identical
to
original
equation
(equation
(11))
except
for
the
term
κm.
Equation
(17),(equation
determining
thethe
conditions
under
which
there
would
be positive
migration,
is
exactly
as
before
(10)).
Equation
(18),
on the
other
hand,
which
describes
equilibrium
positive
migration,
is
identical
to
original
equation
(equation
(11))
except
for
the
term
κm.
exactly
as
before
(equation
(10)).
Equation
(18),
on
the
other hand,
which
describes
equilibrium
positive
migration,
is
identical
to
the
original
equation
(equation
(11))
except
for
the
term
κm.
This
has
two
implications.
First,
the
same
regimes
of
unavoidable
migration,
avoidable
migration,
exactly
before
(equation
(10)).
Equation
(18),
on
other hand,
which
describes
positive
migration,
is identical
tothe
the
original
equation
(equation
(11))
except
for theequilibrium
term κm.
This
hasas
two
implications.
First,
regimes
of the
unavoidable
migration,
avoidable
migration,
positive
migration,
is hold
identical
to
thesame
original
equation
(equation
(11)) except
for
the
term κm.
This
has
two
implications.
First,
the
same
regimes
of
unavoidable
migration,
avoidable
migration,
and
no
migration
will
in
a
manner
similar
to
the
one
in
the
baseline
model,
and
described
by
positive
migration,
is hold
identical
thesame
original
equation
(11)) except
for
term κm.
This
hasmigration
two implications.
First,
the
regimes
of unavoidable
migration,
avoidable
migration,
and
no
will
in a to
manner
similar
to the
one(equation
in the baseline
model,
andthe
described
by
This
has
two
implications.
First,
the
same
regimes
of
unavoidable
migration,
avoidable
migration,
and
no
migration
will
hold affect
in a manner
similar
to
the
one
in the in
baseline
and
by
the
way
in
which
policies
the
migration
threat
condition
(17). model,
Second,
thedescribed
equilibrium
This
has
two
implications.
First,
the
same
regimes
of
unavoidable
migration,
avoidable
migration,
and way
no migration
hold affect
in a manner
similar to
the one
in the in
baseline
model,
and
described
by
the
in which will
policies
the migration
threat
condition
(17). model,
Second,and
thedescribed
equilibrium
and
no
migration
will
hold
in
a
manner
similar
to
the
one
in
the
baseline
by
the
way
in which will
policies
affect
the migration
threat
condition
in
(17). model,
Second,and
thedescribed
equilibrium
and
no
migration
hold
in
a
manner
similar
to
the
one
in
the
baseline
by
the way in which policies affect the migration threat condition in (17). Second, the equilibrium
the way in which policies affect the migration threat
condition in (17). Second, the equilibrium
21
the way in which policies affect the migration threat
condition in (17). Second, the equilibrium
21
21
21
21
2123
level of migration in the interesting case of positive migration, while different quantitatively to
level of migration in the interesting case of positive migration, while different quantitatively to
whereofκ migration
= 0 (exogenous
wages),
hasofthe
same qualitative
That is, the fact
level
in theurban
interesting
case
positive
migration, characteristics.
while different quantitatively
to
where
κ migration
= 0 (exogenous
urban
wages),
hasofthe
same qualitative
characteristics.
That is, the fact
level
of
in
the
interesting
case
positive
migration,
while
different
quantitatively
to
that
nowinreduces
urban
wages
implies
that qualitative
a lower level
of migration
will
where
= 0 (exogenous
wages),
has
same
characteristics.
Thatbeis,necessary
the fact
level migration
ofκ migration
theurban
interesting
case
ofthe
positive
migration,
while
different quantitatively
to
that
migration
now
reduces
urban
wages
implies
that
a
lower
level
of
migration
will
be
necessary
where
κ =the
0 (exogenous
urban
wages),
has theHowever,
same qualitative
characteristics.
That
is, the (18)
fact
to
equate
value
of
urban
and
rural
wages.
aside
from
this
implication,
equation
that
migration
now reduces
urban
wageshas
implies
that qualitative
a lower level
of migration will
beis,necessary
where
κ =the
0 (exogenous
urban
theHowever,
same
characteristics.
That
the (18)
fact
to
equate
value
of
urban
andwages),
rural
wages.
aside
from
this
implication,
equation
that
migration
now
reduces
urban
wages
implies
that afor
lower
levelhence
of migration
will
be necessary
as
the
original
model.
otherwise
has
the
same
comparative
static
implications
m
and
L
R
to equate
the value
of
urban urban
and rural
wages.
However,
aside
from
implication,
equation
(18)
that
migration
now
reduces
wages
implies
that afor
lower
level this
of migration
will
be necessary
original
model.
otherwise
has value
the
same
comparative
static
implications
m and
LR as the
to equate
the
of urban
and
rural
wages.
However,
aside
fromhence
this
implication,
equation
(18)
In
short,
while
this
more
realistic
formulation
would
generate
a
smaller
level
of
equilibrium
model.
otherwise
has value
the same
comparative
static
implications
for
m and
hence
LR as the original
to
equate
the
of
urban
and
rural
wages.
However,
aside
from
this
implication,
equation
(18)
In short,
while
this comparative
more realistic
formulation
would
generate
a smaller
level
of equilibrium
the
original
model.
otherwise
has
the same
static
implications
for
m and
hence
Lof
R as
migration,
it
would
otherwise
have
no
implications
for
the
main
conclusions
the
analysis
regarding
In short,
while
this comparative
more realistic
formulation
would
generate
a smaller
level
of equilibrium
the
original
model.
otherwise
has
the same
implications
m and
hence
Lof
R as
migration,
it would
otherwise
have
nostatic
implications
forwould
thefor
main
conclusions
the
analysis
regarding
In
short,
while
this
more
realistic
formulation
generate
a
smaller
level
of
equilibrium
the
rural
elite’s
incentives.
Inrealistic
particular,
the rural
elite’s
main
tradeoff
same, as
migration,
it would
otherwise
no implications
forwould
the
main
conclusions
of remains
the
analysis
regarding
In
short,
while
this morehave
formulation
generate
a smaller
level
ofthe
equilibrium
the
rural
elite’s
incentives.
In particular,
the rural
elite’s
main
tradeoff
remains
the
same, as
migration,
it
would
otherwise
have
no
implications
for
the
main
conclusions
of
the
analysis
regarding
migration
(while
lower)
will still
respond
in athe
similar
fashion
toconclusions
their
choice
of
institutions.
the
rural elite’s
incentives.
In particular,
rural
elite’s
main
tradeoff
remains
the regarding
same, as
migration,
it
would
otherwise
have
no
implications
for
the
main
of
the
analysis
migration
(while incentives.
lower) will still
respond in athe
similar
fashion
to their
choice remains
of institutions.
the On
rural
elite’s
In
particular,
rural
elite’s
main
tradeoff
the
same,
as
theelite’s
other incentives.
hand, will
it is still
reasonable
that
the urban-industrial
welfare
is demigration
(while
lower)
respondtoinsuppose
athe
similar
fashion
to their
choice remains
ofelite’s
institutions.
the On
rural
In
particular,
rural
elite’s
main
tradeoff
the
same,
as
the(while
other lower)
hand, will
it is still
reasonable
toinsuppose
that
the urban-industrial
elite’s
welfare is demigration
respond
a similar
fashion
to
their policies
choice ofand
institutions.
creasing
in
urban
wages.
If
this
is
the
case,
the
urban
elite
will
oppose
institutions
that
On
the
other
hand,
it
is
reasonable
to
suppose
that
the
urban-industrial
elite’s
welfare
is
demigrationin(while
lower)
stillisrespond
inthe
a similar
fashion
to
their policies
choice ofand
institutions.
creasing
wages.will
the case,
urbanthat
elite
willurban-industrial
oppose
institutions
On equilibrium
the urban
other hand,
itIfisthis
reasonable
to increase
suppose
the
elite’s
welfare
isthat
dereduce
migration
because
they
urban
wages.
A
conflict
of
interest
between
the
creasing
in
urban
wages.
If
this
is
the
case,
the
urban
elite
will
oppose
policies
and
institutions
On
the
other
hand,
it
is
reasonable
to
suppose
that
the
urban-industrial
elite’s
welfare
isthat
dereduce
equilibrium
migration
because
they
increase
urban
wages.
A
conflict
of
interest
between
the
creasing
inthe
urban
wages.
Ifcould
this is
the around
case, theproperty
urban elite
willinstitutions
oppose policies
and
institutions
that
rural
and
urban
elite
arise
rights
in
the
subsistence
sector.
reduce
equilibrium
migration
because
they increase
urban
wages.
A conflict
of and
interest
betweenthat
the
creasing
inthe
urban
wages.
this
is
the around
case,
theproperty
urban
elite
willinstitutions
oppose
policies
institutions
rural
urban
elite Ifcould
arise
rights
in of
theinterest
subsistence
sector.
reduceand
equilibrium
migration
because
they
increase
urban
wages.
A conflict
between
the
While
the
rural
elite
may
push
for
bad
property
rights
to
tie
peasants
to
the
land,
the
urban
elite
rural
the urbanmigration
elite could
arise around
property
rights
institutions
in of
theinterest
subsistence
sector.
reduceand
equilibrium
because
they
increase
urban
wages.
A conflict
between
the
While
the
rural
elite
may
push
for
bad
property
rights
to
tie
peasants
to
the
land,
the
urban
elite
rural oppose
and thethem
urban
elite
could
arise
around
property rights institutions in the subsistence sector.
may
for
exactly
the
same
reason.
While
the the
rural
elite elite
may could
push for
bad
property
rightsrights
to tie institutions
peasants to in
thethe
land,
the urban
elite
rural oppose
and
urban
arise
around
property
subsistence
sector.
may
them
for may
exactly
same
reason.
While
the rural
elite
pushthe
for
bad
property to
rights
tothat
tie peasants
to thepossibility
land, the urban
elite
Before
proceeding,
however,
it
is
important
note
an
alternative
is
that,
as
may
oppose
them
for may
exactly
the
same
reason.
While
the
rural
elite
push
for
bad
property
rights
to
tie
peasants
to
the
land,
the
urban
elite
Before
proceeding,
however,
itsame
is important
to note that an alternative possibility is that,
as
may
oppose
them
for
exactly
the
reason.
bad
property
rights
reduce
productivity
of the peasants,
it also
helps in providing
industry
with
Before
proceeding,
however,
itsame
is important
to note that
an alternative
possibility
is that,
as
may
oppose
them
for
exactly
the
reason.
badBefore
property
rights reduce
productivity
of the peasants,
it also
helps in providing
industry
with
proceeding,
however,
it
is
important
to
note
that
an
alternative
possibility
is
that,
as
cheap
labour.
For this
to
beproductivity
the it
case,
urban
wages
would
have
toalternative
be closely
linked
toindustry
rural
wages,
bad
property
rights
reduce
of the
peasants,
it also
helps
in providing
with
Before
proceeding,
however,
is
important
to
note
that
an
possibility
is
that,
as
cheapproperty
labour. rights
For this
to beproductivity
the case, urban
wages
would have
be closely
linked toindustry
rural wages,
bad
reduce
of the
peasants,
it lower
alsotohelps
in providing
with
such
that
the
effect
of
the
fall
in
rural
wages
generated
by
peasant
productivity
dominates
cheap
labour.
For
this
to
be
the
case,
urban
wages
would
have
to
be
closely
linked
to
rural
wages,
bad property
reduce
productivity
of thegenerated
peasants,byit lower
also helps
in providing
industry
with
such
that
the rights
effect
of
thebefall
ruralurban
wages
peasant
productivity
dominates
cheap
labour.
For
this
to
theincase,
wages of
would
have tolabour
be
closely
linked
to
rural
wages,
the
effect
of
a
fall
in
migration.
The
exact
details
the
urban
market
and
its
integration
such
that
the
effect
of
the
fall
in
rural
wages
generated
by
lower
peasant
productivity
dominates
cheap
labour.
For
to be the case,
urbandetails
wages of
would
have tolabour
be closely
linked
wages,
the
effect
of
fall this
inofmigration.
exact
theby
urban
market
and to
itsrural
integration
such
thatrural
thea effect
the fallwill
inThe
rural
wageswhich
generated
lower peasant
productivity
dominates
with
the
labour
market
determine
effect
dominates.
the
effect
of
a
fall
in
migration.
The
exact
details
of
the
urban
labour
market
and
its
integration
such the
thatrural
the effect
ofmarket
the fallwill
in rural
wageswhich
generated
by lower peasant productivity dominates
with
labour
determine
effect
the In
effect
of
a fall
in migration.
The
exact details
of
theofdominates.
urban
labour market
andincluding
its integration
the
next
section,
I
discuss
the
empirical
relevance
the theoretical
analysis,
these
with
the rural
labour
market willThe
determine
which of
effect
the In
effect
of
a fall
in migration.
exact details
theofdominates.
urban
labour market
andincluding
its integration
the
next
section,
I
discuss
the
empirical
relevance
the
theoretical
analysis,
these
with
the
rural
labour
market
will
determine
which
effect
dominates.
effects
onrural
the
for the
the
case of Rhodesia.
I of
show
urban-industrial
elites opposed
Inthe
the
nextindustrial
section,market
Ielite,
discuss
empirical
relevance
the that
theoretical
analysis, including
these
with
labour
will
determine
which
effect
dominates.
effects
on the
industrial
for the
the empirical
case of Rhodesia.
show
that
urban-industrial
elites opposed
In
the
nextrights
section,
Ielite,
discuss
relevanceIsector
of
thebecause
theoretical
analysis,
including
these
bad
property
institutions
in
the
rural
subsistence
they
discouraged
permanent
effects
on the
industrial
elite,
for the
the empirical
case of Rhodesia.
I of
show
that
urban-industrial
elites opposed
In
the
next
section,
I
discuss
relevance
the
theoretical
analysis,
including
these
bad property
rights
institutions
thecase
ruralofsubsistence
they discouraged
permanent
effects
on themigration.
industrial
elite, forinthe
Rhodesia.
Isector
show because
that
urban-industrial
elites
opposed
rural-urban
Interestingly,
however,
in
other
historical
cases
with
a
closer
integration
of
bad property
rights
institutions
thecase
ruralofsubsistence
sector
they discouraged
permanent
effects
on themigration.
industrial
elite, forinthe
Rhodesia.
show because
that
urban-industrial
opposed
rural-urban
Interestingly,
however,
in other Isector
historical
cases
withdiscouraged
a closer elites
integration
of
bad
property
rights
institutions
in
the
rural
subsistence
because
they
permanent
the industrial
and rural
labour markets,
there
seemed
be a because
convergence
elites
rural-urban
migration.
Interestingly,
however,
in othertosector
historical
casesthey
withof
asome
closerindustrial
integration
of
bad
property
rights
institutions
in
the
rural
subsistence
discouraged
permanent
the industrial
and rural Interestingly,
labour markets,
there seemed
tohistorical
be a convergence
ofasome
industrial
elites
rural-urban
migration.
however,
in
other
cases
with
closer
integration
of
with
the rural
eliterural
around
rural
institutions.
Take,
for
example,
the case
ofasome
South
Africa.
While
the
industrial
and
labour
markets,
there seemed
tohistorical
be a convergence
of
industrial
elites
rural-urban
migration.
Interestingly,
however,
in
other
cases
with
closer
integration
of
withindustrial
the ruraland
eliterural
around
rural
institutions.
Take, for
the case of
of some
Southindustrial
Africa. While
the
labour
markets,
there seemed
to example,
be a convergence
elites
otherwise
very
similar
to
the
Rhodesian
society
and
economy,
a
key
difference
in
South
Africa
was
with
the
rural
elite
around
rural
institutions.
Take,
for
example,
the
case
of
South
Africa.
While
the
industrial
ruraltolabour
markets, society
there seemed
to be a convergence
of some
industrial
elites
otherwise
veryand
similar
therural
Rhodesian
and economy,
a key
in South
Africa
was
with
the rural
elite
around
institutions.
Take,
for example,
thedifference
casemines
of South
Africa.
While
that
agricultural
elites
faced
competition
for
labour
from
the
mines.
But
adopted
a
system
otherwise
very
similar
to
the
Rhodesian
society
and
economy,
a
key
difference
in
South
Africa
was
with
the
rural
elite
around
rural
institutions.
Take,
for
example,
the
case
of
South
Africa.
While
that
agricultural
elites to
faced
competition
for labour
from the mines.
But mines
adopted
a system
otherwise
very
similar
the
Rhodesian
society
and
economy,
a
key
difference
in
South
Africa
was
of
short-term
Hence, mining
could
not just
with
this in
scheme,
in fact
that
agricultural
elites workers.
faced
for labour
from
the survive
mines.
But mines
adopted
a system
otherwise
verymigrant
similar
to
the competition
Rhodesian
society
and economy,
a key difference
South but
Africa
was
of
short-term
migrant
workers.
Hence,
mining
could
not
just
survive
with
this
scheme,
but
in
fact
that
agricultural
elites from
faced the
competition
for
labour from
the mines.
ButHowever,
mines adopted
a system
might
have
benefitted
decrease
in
peasant’s
outside
options.
it
implied
huge
of short-term
migrant
Hence, mining
could from
not just
with
this scheme,
but
in fact
that
agricultural
elites workers.
faced the
competition
for
labour
the survive
mines.
ButHowever,
mines
adopted
a system
might
have benefitted
from
decrease
in peasant’s
outside
options.
it implied
of
short-term
migrant which
workers.
Hence,
mining
couldand
not
just survive
with
this force
scheme,
but
inhuge
fact
obstacles
for
industry,
required
a
more
stable
better
educated
labour
(see
Feinstein,
might
have benefitted
from theHence,
decrease
in peasant’s
outside
options.
However,
it implied
of
short-term
migrant
workers.
mining
could
not
just
survive
with
this
scheme,
but
inhuge
fact
obstacles
for
industry,
which
required
a
more
stable
and
better
educated
labour
force
(see
Feinstein,
might
have
benefitted from the decrease in peasant’s outside options. However, it implied huge
2005,
p.
130).
obstacles
forbenefitted
industry, which
a more
and outside
better educated
forceit(see
Feinstein,
might
have
from required
the decrease
in stable
peasant’s
options. labour
However,
implied
huge
2005, p.
130).
obstacles
for industry, which required a more stable and better educated labour force (see Feinstein,
2005, p. 130).
obstacles
for industry, which required a more stable and better educated labour force (see Feinstein,
2005, p. 130).
2005, p. 130).
22
22
22
22
22
24
6
6
The Rhodesian Case
The Rhodesian Case
As notedforineach
the of
Introduction,
history and the developing world provide many examples of dual
support
these assumptions.
rural
economies
peasants
have
more
limited
property
rightsthe
andelite
lessand
political
influence
than
As In
noted
in the where
Introduction,
history
and
the developing
world
provide
many
examples
of
dual
Southern
Africa
in general
(and
Rhodesia
in
particular)
subsistence
sectors
landowners.
Arguably,
there
is no
better
illustration
of and
this
situation
the
African
rural
economies
where peasants
have
more
limited
property
political
influence
than
are
easily
identifiable,
ashowever,
they were
segregated
along
racial rights
lines.
Andless
there
is than
little
doubt
that
colonies
large,minority
private
estates
ofiswhite
farmers
have coexisted
with overcrowded
African
landowners.
Arguably,
however,
there
no
better
illustration
of thisagainst
situation
theminority.
the
whitewhere
capitalist
held
political
power
and
shaped
policies
thethan
native
reserves.(1977a)
Resembling
customs
African
societies,
land
inthe
thedominant
blackovercrowded
reserves
typically
colonies
where
large,
private
ofofwhite
farmers
have
coexisted
with
African
Palmer
puts itancient
bluntly:estates
in Rhodesian
agricultural
history,
themeis“is
surely
owned
by Resembling
theofcommunity,
not the
individual.
While
individuals
haveblack
secure
(and
often
inherireserves.
ancient
customs
of African
landmay
in the
reserves
is typically
the
triumph
European
over
African
farmers”
(p.societies,
221). This
triumph
includes
a history
of war
table)
rights
use
land,
the
structure
often
implies
they
permanent
property
owned
by thetocommunity,
notcommunal
the
individual.
While
individuals
may may
have lack
secure
(and often
inheriand
dispossession
that
followed
European
colonization,
and
that highlights
the
political
power
of the
rights minority.
over
specific
plot,
or
that
these rights
areSouth
lost after
a Company
period
of absence.
Also importantly,
table)
rightsa to
use
land,
communal
structure
often
implies
they may
lack permanent
property
white
Soon
afterthe
Cecil
Rhodes’
British
Africa
(BSAC)
obtained,
in 1889,
transfer
rights
(iftoany)
suchorasthat
sales
or rentals
limited
to athe
community.
Needless
say, white
a specific
plot,
rights
are
lost after
period
absence.
Also
importantly,
arights
Royalover
Charter
administer
the these
territory
asare
a protectorate,
the
twoofmain
groups
of to
natives
(the
agricultural
interests
held
historically
a far
political
power than
black
transfer
rights
(if any)also
suchthe
as Shona)
sales
or experienced
rentals
are greater
limited
to
the dispossession
community.
Needless
to say,
white
Ndebele
or Matabele,
and
a large-scale
of the
theirexcluded
land
through
majority.
agricultural
interests
also and
heldfound
historically
a farunder
greater
than the
excluded
violent
and illegal
means,
themselves
thepolitical
politicalpower
domination
of the
settlersblack
(see
A full
test ofp.the
model’s
assumptions
and predictions
goes
beyond
the scope
of confined
this paper.
majority.
Palmer
(1977b,
27)).
The dual
rural economy
was codified
when
the Natives
were
in
However,
this
examines
the case“cemeteries,
ofand
Rhodesia
(formerly
Southern
or
A full some
test section
of
model’s
assumptions
predictions
goes beyond
theRhodesia,
scope p.
of 33)
thiscurrentpaper.
Reserves,
of the
which
were considered
not
Homes’”
(Palmer,
1977b,
even
by
day Colonial
Zimbabwe)
as a And
particularly
representative
of (formerly
other
settler
colonies
in Africaorwhere
However,
thisOffice!
section
examines
case
of Rhodesia
Southern
Rhodesia,
currentthe
around the
1907,
when
thecase
BSAC
Directors
convinced
themselves
that
the
exploitation
the
subsistence
economy
the
agricultural
interests
a prominent
day
Zimbabwe)
as black
alonging
particularly
casewhite
of other
settler colonies
inplayed
Africa
where the
gold
they hadofbeen
for didrepresentative
not
exist inbyRhodesia,
they
established
the “White
Agricultural
role. TheThis
discussion
isthe
meant
to illustrate
thebyrelevance
ofagricultural
the
analysis
in apractice,
by
exploitation
ofmarked
the black
subsistence
economy
the white
interests
played
prominent
Policy.”
beginning
of a differential
support
for theoretical
European
farmers
via
government
drawing
this particularly
historical
example.
Itavailable
is divided
in
twoinparts.
First,
role.
Thefrom
discussion
is meant
toillustrative
illustrate
the
relevance
of the
analysis
practice,
by
bureaucracy,
banks,
and
support
in research,
none
of which
weretheoretical
for
Africans.
Moreover,
I demonstrate
the of
historical
relevance
of
the
main
theoretical
Iparts.
discuss
the
drawing
frompower
this
particularly
illustrative
historical
example.
Itinis1922,
divided
inNext,
two
First,
the
political
white agricultural
interests
persisted
when,assumptions.
the era
of Company
rule
thethe
theoretical
predictions
and
mechanisms
interpret
Rhodesian
agricultural
Iusefulness
demonstrate
relevance
of the
main theoretical
assumptions.
Next, I discuss
the
came
to anofend,
andhistorical
political
power formally
passed
to to
white
settlers
after a referendum
inhistory.
which
usefulness
themostly
theoretical
predictions
and mechanisms
to interpret
Rhodesian
history.
the
(small of
and
European)
electorate
rejected joining
the Union
of Southagricultural
Africa.
6.1Moving
The to
key
inkey
practice
theassumptions
second and third
assumptions, it is also clear that the institutions of limited
6.1 The
keyinassumptions
inboth
practice
property
rights
African reserves
hindered rural-urban migration and limited productivity.
The three most important assumptions in the theoretical analysis are the following. First, the theory
Arrighi (1970, p. 223) notes that the tribal social system in Rhodesia made black peasants unwillis based
the important
premise that
political power
(the abilityanalysis
to shape
and policies)
is
The
threeon
most
assumptions
in the theoretical
arekey
theinstitutions
following. First,
the theory
ing to permanently migrate to industrial urban centers. If they ever migrated, they did so only
largely
of private
landowners.
The ability
second toand
third
key
assumptions
is basedinonthe
thehands
premise
that political
power (the
shape
key
institutions
andconcern
policies)the
is
temporarily, so that “participation in the labour force thus left the worker’s obligations and duties
double-impact
of poor
rights on theThe
subsistence
sector:
its productivity,
largely
in the hands
of property
private landowners.
second and
thirdlowering
key assumptions
concern and
the
to his rural kinsmen and his general involvement in the tribal social system unchanged
so as to
8
, there is ample
increasing the cost
of rural-urban
migration.
Rhodesia, sector:
as in other
countries
double-impact
of poor
property rights
on theInsubsistence
lowering
its productivity,
and
retain
his
cultivation
rights
and
to
be
able
to
claim
support
and
succour
when
necessary”
(Arrighi,
8
support
forthe
each
of these
assumptions.
increasing
cost
of rural-urban
migration. In Rhodesia, as in other countries , there is ample
8
Anp.almost
parallel story to the one told below for Rhodesia could be told of other African societies. For instance,
1970,
223).
In Southern Africa in general (and Rhodesia in particular) the elite and subsistence sectors
as discussed
before in South Africa the native reserves discouraged migration helping the rural elite’s urge for labour
8
An almost parallel story to the one told below for Rhodesia could be told of other African societies. For instance,
to the
limitations
productivity
arose
from institutions
of
limited
property
rights,
but Turning
hurting
some
industrial
interests.
Also,
the verythat
low
productivity
of African
in South
Africa
isthat
well
are
easily identifiable,
theyto
were
segregated
along
racial
lines.
Andreserves
there
little
doubt
as discussed
before in SouthasAfrica
the
native
reserves discouraged
migration
helping
the
ruraliselite’s
urge
for labour
established,
and
communal
tenure
“was
a
potential
barrier
in
the
reserves
to
those
few
who
might
have
wished
to
nothing
more
telling
than
the
with
Purchase
Areas
(NPAs).
Of
allAfrica
the
native
but hurting
some industrial
interests.
Also,
the very
lowNative
productivity
of
African
reserves
in South
is well
the
whiteis capitalist
minority
heldexperience
political
power
and
shaped
policies
against
the
native
minority.
be more innovative and entrepreneurial” (Feinstein, 2005, p. 73). In a very different context, another prominent
established,
and communal
tenure
“was
a potential
barrierrights
in the regime,
reserves to
those
few who might
have
wished to
areas,
hadit
the
mostis
complete
property
asseem
at least
unlike
in Reserves
examplethese
of a areas
dual puts
rural
economy
Mexico.
Here,
too,
these assumptions
well here
founded.
Throughout
the
Palmer
(1977a)
bluntly:
in Rhodesian
agricultural
the
dominant
surely
be more innovative
and entrepreneurial”
(Feinstein, 2005,
p. 73). Inhistory,
a very different
context, theme
another“is
prominent
XXth allocated
Century, land
distributed
to peasant communities
in the
form
of ejidos
was characterized
bywere
institutions
land
was
owned
individually
instead
of
by
the
tribe.
But
even
here,
“there
many
example
of a dual
rural economy
Mexico. farmers”
Here, too,(p.
these
assumptions
seem well
founded.a history
Throughout
the
the
triumph
of European
overisAfrican
221).
This triumph
includes
of war
of communal property, with inheritable (but otherwise non-transferable) use rights over plots that would be lost
XXth Century,
land
distributed to peasant
in
theofform
of ejidos
was
characterized
by institutions
limitations
its transferability,
such ascommunities
maximum
size
and
sales
Europeans.
after dispossession
absence.toRegarding
landownerEuropean
political
power,
a large
political
economy
tradition
ofpolitical
land reform inAmong
Mexico
and
that
followed
colonization,
andholdings
that
highlights
theto
of the
of communal property,
with
inheritable (but otherwise
non-transferable)
use rights over
plots that power
would be
lost
emphasizes
thethis
influence
of that
landowner
agricultural
interests
in shaping
thepossibly
land reform
process
and
discriminating
other
things
meant
the
extension
of
credit
(which
could
only
come
from
European
after absence.
Regarding
landowner
a large
political
tradition
of land
reform in
white
minority.
Soon after
Cecil political
Rhodes’power,
British
South
Africaeconomy
Company
(BSAC)
obtained,
inMexico
1889,
against the ejido sector. Regarding the impact of poor property rights, Lamartine Yates (1981) nicely summarizes
emphasizestothe
influence
of landowner
agriculturaland
interests
in shaping
the landlack
reform
process andwas
discriminating
sources)
African
farmers
was
hampered
constant
oftofinancing
bound
to
two implications
in the
model:
“theoretically,
[thea ejidatario]
is free
leave whenever
he wishes,
athe
Royal
Charter
toemphasized
administer
territory
as atherefore
protectorate,
the two
main
of natives
(the
against
the
ejido sector.
Regarding the
the impact
of poor
property
rights, Lamartine
Yates groups
(1981) nicely
summarizes
but inback
practice
he development”
is a prisoner tied(Arrighi,
to his land,
because,
if he left, the ejido would give him no compensation for
hold
1973,
p. 347).
the two implications
emphasized
the model:
“theoretically,
[the ejidatario]
is free to leave
whenever
wishes,
Ndebele
ortheir
Matabele,
and theinShona)
experienced
a large-scale
dispossession
of their
landhe
through
but in practice he is a prisoner tied to his land, because, if he left, the ejido would give him no compensation for
violent and illegal
and found
themselves
under the political domination of the settlers (see
improvements
he may means,
have achieved
through
years of hard
23work.” (p. 180).
Palmer (1977b, p. 27)). The dual rural economy was codified when the Natives were confined in
23
Reserves, some of which were considered “cemeteries,
not Homes’” (Palmer, 1977b, p. 33) even by
24
the Colonial Office! And around 1907, when the 25
BSAC Directors convinced themselves that the
gold they had been longing for did not exist in Rhodesia, they established the “White Agricultural
support for each of these assumptions.
support
for each Africa
of theseinassumptions.
In Southern
general (and Rhodesia in particular) the elite and subsistence sectors
support
for
each
of
these
assumptions.
In
Southern
Africa
in
general
Rhodesia
in particular)
elitethere
and is
subsistence
sectors
are easily identifiable, as they were(and
segregated
along
racial lines.theAnd
little doubt
that
In
Southern
Africa
in
general
(and
Rhodesia
in
particular)
the
elite
and
subsistence
sectors
are
easily
identifiable,
as
they
were
segregated
along
racial
lines.
And
there
is
little
doubt
that
the white capitalist minority held political power and shaped policies against the native minority.
are
easily
identifiable,
theyheld
were
segregated
along
racialhistory,
lines.
And
there the
is little
doubt
that
the
white
capitalist
power
and shaped
policies
against
native
minority.
Palmer
(1977a)
putsminority
it as
bluntly:
inpolitical
Rhodesian
agricultural
the
dominant
theme
“is
surely
the
capitalist
power
and221).
shaped
policies
the theme
minority.
Palmer
(1977a)
putsminority
it bluntly:
inpolitical
Rhodesian
agricultural
history,
theagainst
dominant
“is
surely
the white
triumph
of European
overheld
African
farmers”
(p.
This
triumph
includes
anative
history
of
war
Palmer
(1977a)
puts
bluntly:
in Rhodesian
agricultural
history,
the dominant
theme
“is of
surely
the
of European
over African
farmers”
(p. 221).
This
triumph
includes
a history
and triumph
dispossession
thatitfollowed
European
colonization,
and that
highlights
the political
power
of war
the
the
triumph
of European
over
(p. 221).
This
triumph(BSAC)
includes
a history
war
and
dispossession
thatafter
followed
European
colonization,
and
that
highlights
the political
power
the
white
minority.
Soon
CecilAfrican
Rhodes’farmers”
British
South
Africa
Company
obtained,
inofof
1889,
and
dispossession
followed
European
colonization,
and
that
highlights
thegroups
political
the
white
minority.
after
Cecilthe
Rhodes’
British
Africa
Company
(BSAC)
obtained,
in of
1889,
a Royal
CharterSoon
tothat
administer
territory
as a South
protectorate,
the
two main
of power
natives
(the
white
minority.
Soon
after
Cecil
Rhodes’
British
Africa Company
(BSAC)
obtained,
in 1889,
aNdebele
Royal
Charter
to administer
the
territory
as a South
protectorate,
the
two main
groups
ofland
natives
(the
or Matabele,
and the
Shona)
experienced
a large-scale
dispossession
of their
through
aviolent
Royaland
Charter
administer
the territory
as a under
protectorate,
the
two
main groups
ofland
natives
(the
Ndebele
or Matabele,
and and
the Shona)
experienced
a large-scale
dispossession
of their
through
illegaltomeans,
found
themselves
the political
domination
of the
settlers
(see
Ndebele
or Matabele,
andThe
the dual
Shona)
experienced
a large-scale
dispossession
of their
through
violent
illegal
and
foundrural
themselves
the political
domination
ofwere
theland
settlers
(see
Palmer and
(1977b,
p. means,
27)).
economyunder
was
codified
when
the Natives
confined
in
violent
and
illegal
means,
and
found
themselves
under
the
political
domination
of
the
settlers
(see
Palmer
(1977b,
p.
27)).
The
dual
rural
economy
was
codified
when
the
Natives
were
confined
in
Reserves, some of which were considered “cemeteries, not Homes’” (Palmer, 1977b, p. 33) even by
Palmer
(1977b,
p. which
27)).
The
dual1907,
rural when
economy
codified
when
the Natives
were
confined
in
Reserves,
some
of
considered
“cemeteries,
not
Homes’”
(Palmer,
1977b,
p. 33)
eventhe
by
the Colonial
Office!
Andwere
around
the was
BSAC
Directors
convinced
themselves
that
Reserves,
of which
“cemeteries,
not they
Homes’”
(Palmer,
p. Agricultural
33)that
eventhe
by
the
Andwere
around
when
BSAC
Directors
convinced
themselves
goldColonial
they some
hadOffice!
been
longing
forconsidered
did1907,
not exist
in the
Rhodesia,
established
the1977b,
“White
the
Colonial
And
around
when
BSAC
Directors
convinced
themselves
that the
gold
theyThis
hadOffice!
been longing
for did1907,
not
in the
Rhodesia,
they
the
“White
Policy.”
marked
the beginning
of aexist
differential
support
forestablished
European
farmers
via Agricultural
government
gold
theyThis
hadbanks,
been longing
for didinnot
innone
Rhodesia,
they
Policy.”
marked
thesupport
beginning
of aexist
differential
forestablished
European
farmers
via Agricultural
government
bureaucracy,
and
research,
ofsupport
which
were
availablethe
for “White
Africans.
Moreover,
Policy.”
Thispower
marked
thesupport
beginning
of a interests
differential
for European
farmers
government
bureaucracy,
banks,
in research,
nonepersisted
ofsupport
whichwhen,
were
available
for era
Africans.
Moreover,
the political
ofand
white
agricultural
in
1922, the
ofvia
Company
rule
bureaucracy,
banks,
support
in research,
none
of to
which
were
available
for
Africans.
Moreover,
the
political
power
ofand
white
agricultural
interests
persisted
when,
in
1922,
era
of Company
rule
came
to an end,
and
political
power
formally
passed
white
settlers
afterthe
a referendum
in which
the
power
of political
white
agricultural
interests
persisted
when,
in 1922,
the
eraAfrica.
of Company
rule
came
to anand
end,
and
power
formally
passed
to white
settlers
after
a referendum
in which
the political
(small
mostly
European)
electorate
rejected
joining
the
Union
of South
came
to anand
end,
and
political
power
formally
passed joining
to
settlers
after
ainstitutions
referendum
which
the
(small
mostly
European)
electorate
rejected
Union
ofthe
South
Africa. ofinlimited
Moving
to
the
second
and third
key
assumptions,
it iswhite
alsothe
clear
that
the
(smallrights
and
mostly
European)
rejected
joining
Union
South
Africa.
Moving
to the
and
thirdelectorate
key assumptions,
it is alsothe
clear
thatofthe
institutions
of limited
property
in second
African
reserves
both
hindered
rural-urban
migration
and
limited
productivity.
Moving
to the
second
and
third
key
assumptions,
it is in
also
clear
that
the
institutions
of limited
property
rights
African
reserves
both
hindered
rural-urban
migration
andblack
limited
productivity.
Arrighi
(1970,
p.in223)
notes
that
the
tribal
social system
Rhodesia
made
peasants
unwillproperty
rights
in
African
reserves
both
hindered
rural-urban
migration
and
limited
productivity.
Arrighi
(1970, p. 223)
notes that
the tribalurban
socialcenters.
system in
black they
peasants
unwilling to permanently
migrate
to industrial
If Rhodesia
they evermade
migrated,
did so
only
Arrighi
(1970,
223)
notes that
the
socialforce
system
Rhodesia
made
black
peasants
unwilling
to permanently
migrate
to industrial
urban
centers.
Ifleft
they
migrated,
they
did
only
temporarily,
sop.that
“participation
in tribal
the labour
thusin
theever
worker’s
obligations
andso
duties
ing
to rural
permanently
industrial
urban force
centers.
Ifleft
they
ever
migrated,
they did
soduties
only
temporarily,
so that migrate
“participation
in the
labour
thustribal
the
worker’s
obligations
and
to
his
kinsmen
and histogeneral
involvement
in the
social
system
unchanged
so
as
to
temporarily,
so that “participation
in able
the
labour
force
thustribal
left
worker’s
obligations
and
to
his his
rural
kinsmen
and his
general
involvement
in
the
social
system
unchanged
soduties
as to
retain
cultivation
rights
and
to be
to claim
support
andthe
succour
when
necessary”
(Arrighi,
to
his p.
rural
kinsmen rights
and his
general
involvement
the tribal
social system
unchanged (Arrighi,
so as to
retain
his
cultivation
and
to be able
to claim in
support
and succour
when necessary”
1970,
223).
retain
his223).
cultivation
rights and
be able to that
claimarose
support
succour when
necessary”
(Arrighi,
1970,
p.
Turning
to the limitations
to to
productivity
fromand
institutions
of limited
property
rights,
1970,
p. is223).
Turning
to the
limitations
to productivity
thatNative
arose from
institutions
of limitedOf
property
nothing
more
telling
than the
experience with
Purchase
Areas (NPAs).
all the rights,
native
Turning
to
the
limitations
to
productivity
that
arose
from
institutions
of
limited
property
rights,
nothing
is
more
telling
than
the
experience
with
Native
Purchase
Areas
(NPAs).
Of
all
the
native
areas, these areas had the most complete property rights regime, as at least here unlike in Reserves
nothing
is more
telling
than
thecomplete
experience
withofNative
(NPAs).
Of allin
the
native
areas,
these
areas
had
the
most
property
rights
regime,
asAreas
ateven
least
here “there
unlike
Reserves
land allocated
was
owned
individually
instead
by
thePurchase
tribe. But
here,
were
many
areas,
these
areas
had
the
most
complete
property
rights
regime,
as
at
least
here
unlike
in
Reserves
land
allocated
was
owned individually
of by
tribe. But
“there wereAmong
many
limitations
to its
transferability,
such asinstead
maximum
sizethe
of holdings
andeven
saleshere,
to Europeans.
land
was
owned
of by
the
tribe.
But
here,
“there
many
limitations
its
transferability,
such asinstead
maximum
size
of holdings
andeven
sales
tocome
Europeans.
Among
otherallocated
thingstothis
meant
thatindividually
the extension
of credit
(which
could possibly
only
fromwere
European
limitations
its meant
transferability,
such as maximum
size
ofaholdings
and
tocome
Europeans.
Among
other
things
this
thatwas
the hampered
extension
of
credit
(which
could
possibly
only
from
sources)
to to
African
farmers
and
therefore
constant
lacksales
of
financing
was European
bound
to
other
things
thisdevelopment”
meant
thatwas
the
extension
of
credit
(whicha could
possibly
only
come from
sources)
totheir
African
farmers
hampered
and
constant
lack of
financing
was European
bound to
hold back
(Arrighi,
1973,
p.therefore
347).
sources)
African
farmers was(Arrighi,
hampered
andp.therefore
hold backtotheir
development”
1973,
347). a constant lack of financing was bound to
improvements
he may
have achieved(Arrighi,
through years
of p.
hard
work.” (p. 180).
hold back their
development”
1973,
347).
improvements he may have achieved through years of hard work.” (p. 180).
improvements
he maynot
havean
achieved
through a
years
hard
(p.the
180).
24 work.”in
Finally, while
assumption,
keyofparameter
theoretical
analysis shaping the di24
rection of comparative static results is the size of the subsistence sector. There is little doubt that
the expropriation of African land and movement24
of Africans into the reserves, described by Palmer
(1977b) as a “squeezing-out process” (p. 80), implies that the empirically relevant case corresponds
26
to that in which the size of the subsistence sector (t in the model) is small.
Finally, while not an assumption, a key parameter in the theoretical analysis shaping the diFinally, while not an assumption, a key parameter in the theoretical analysis shaping the direction
of comparative
static
results is athe
of the subsistence
sector. There
is little
doubt
Finally,
while not an
assumption,
keysize
parameter
in the theoretical
analysis
shaping
thethat
direction
of comparative
static
results is athe
size
of the subsistence
sector. There
is little
doubt
that
Finally,
while
not
an
assumption,
key
parameter
in
the
theoretical
analysis
shaping
the
dithe
expropriation
of African
andismovement
Africans
into the
reserves,
by Palmer
rection
of comparative
staticland
results
the size ofofthe
subsistence
sector.
Theredescribed
is little doubt
that
the
expropriation
of African
andismovement
Africans
into the
reserves,
described
by Palmer
rection
of
staticland
results
the
size
ofofthe
subsistence
sector.
There
is case
littlecorresponds
doubt
that
(1977b)
ascomparative
a “squeezing-out
80),
implies
that
theinto
empirically
relevant
the expropriation
of African process”
land and(p.
movement
of Africans
the reserves,
described
by Palmer
(1977b)
as
a
“squeezing-out
process”
(p.
80),
implies
that
the
empirically
relevant
case
corresponds
thethat
expropriation
of
landsubsistence
and movement
of(tAfricans
into
theis reserves,
described
by Palmer
Finally,
notAfrican
an of
assumption,
a key
parameter
inthe
the
theoretical
analysis
shaping
the dito
in
the
size
the
in
the
model)
small.
(1977b)
as which
awhile
“squeezing-out
process”
(p.
80),sector
implies
that
empirically
relevant
case
corresponds
to
that
in
which
the
size
of
the
subsistence
sector
(t
in
the
model)
is
small.
(1977b)
as
a
“squeezing-out
process”
(p.
80),
implies
that
the
empirically
relevant
case
corresponds
rection
static
results
is the size
of the
There is little doubt that
to that of
in comparative
which the size
of the
subsistence
sector
(t insubsistence
the model)sector.
is small.
to
that
in
which
the
size
of
the
subsistence
sector
(t
in
the
model)
is
small.
the expropriation
of African
land and
movement of history
Africans into the reserves, described by Palmer
6.2
Interpreting
Rhodesian
agricultural
6.2 Interpreting Rhodesian agricultural history
(1977b)
as a “squeezing-out
process”agricultural
(p. 80), implies that the empirically relevant case corresponds
6.2
Interpreting
Rhodesian
The
most
important predictions
of agricultural
the theoreticalhistory
section are the conditions under which weak
6.2
Interpreting
Rhodesian
to that
in which
the size
of the subsistence
sector (thistory
in the model)
small.
The
most
important
predictions
of the theoretical
section
are theisconditions
under which weak
property
emerge.
These conditions
cruciallysection
dependare
onthe
theconditions
development
of the
modern
The mostrights
important
predictions
of the theoretical
under
which
weak
property
rights
emerge.
These conditions
cruciallysection
dependare
onthe
theconditions
development
of the
modern
The
most
important
predictions
of
the
theoretical
under
which
weak
industrial
or
urban
sector.
I
now
examine
whether
or
not
Rhodesian
history
fits
the
theoretical
property rights emerge. These conditions crucially depend on the development of the modern
6.2
Interpreting
Rhodesian
agricultural
history
industrial
or
urban
sector.
I
now
examine
whether
or
not
Rhodesian
history
fits
the
theoretical
property
rights low
emerge. high
These conditions
crucially depend on the development of the modern
implications
of modernization.
industrial or at
urban and
sector. I levels
now examine
whether or not Rhodesian history fits the theoretical
implications
at
low and
highI levels
of modernization.
industrial
urban
sector.
now
whether section
orwith
not high
Rhodesian
historysince
fits
the
theoretical
The
important
predictions
ofexamine
theoretical
are
the
conditions
under
weak
I most
begin or
with
the and
analysis
equilibrium
institutions
urban
wages,
thewhich
theoretical
implications
at low
highoflevels
ofthe
modernization.
I begin with
the and
analysis
oflevels
equilibrium
institutions with high urban wages, since the theoretical
implications
at
low
high
of
modernization.
property
emerge.
conditions
cruciallyofdepend
oneconomy,
the development
the
modern
predictions
standthe
in analysis
sharp These
contrast
to manyinstitutions
theories
the dual
where
theof
disappearance
I beginrights
with
of equilibrium
with
high
urban
wages,
since
the
theoretical
predictions
standthe
in analysis
sharp contrast
to manyinstitutions
theories of with
the dual
economy,
where
the the
disappearance
I
begin
with
of
equilibrium
high
urban
wages,
since
theoretical
industrial
orstand
urban
sector.
Ia now
orthe
notdual
Rhodesian
history
fits
the
theoretical9
of the subsistence
moreexamine
less whether
natural of
consequence
of a process
modernization.
predictions
insector
sharp is
contrast
toormany
theories
economy,
whereof
the
disappearance
9
of the subsistence
sector
is
a moretoormany
less theories
natural of
consequence
of a process
ofthe
modernization.
predictions
stand
in
sharp
contrast
the
dual
economy,
where
disappearance
implications
at low sector
and
Thethe
theory
presented
inhigh
this
paper,
predictsconsequence
that with modernization,
parametrized
by a9
of
subsistence
is alevels
moreofinstead,
ormodernization.
less natural
of a process of
modernization.
The
theory
presented
in this
predictsconsequence
that with modernization,
parametrized
by a9
of
the
subsistence
is apaper,
more instead,
orsector,
lessinstitutions
natural
ofinawhich
process
of
modernization.
I theory
begin
with
analysis
equilibrium
with
highmodernization,
urban
wages,
since
the theoretical
wage
increase
inthe
thesector
urban-industrial
a rural dual
economy
institutions
of limited
The
presented
in thisofpaper,
instead,
predicts
that
with
parametrized
by a
wage
increase
in the urban-industrial
sector, predicts
a rural dual
economy
in which institutions
of limited
The
theory
presented
in
this
paper,
instead,
that
with
modernization,
parametrized
by a
predictions
stand
in sharp
contrast
to sector,
many theories
of
thefact
dual
economy,
where
the disappearance
property
rights
in the
rural subsistence
in
more
likely.
The
mechanism
wage
increase
inpersist
the
urban-industrial
a areas
rural is
dual
economy
in
which
institutions
ofrequires
limited
property
rights
persist
in
the
rural
subsistence
areas
is
in
fact
more
likely.
The
mechanism
requires
wage
increase
in thesector
urban-industrial
a rural
dual
economy
institutions
limited9
of
theelite
subsistence
is significant
arural
moresubsistence
orsector,
less natural
consequence
ofin
awhich
process
of modernization.
that
landowners
political
power.
social
group
supports
badofproperty
property
rights
persist hold
in the
areas
is
inThis
fact more
likely.
The
mechanism
requires
that
elite
landowners
hold
significant
political
power.
This
social
group
supports
bad
property
property
persistfarmers
in this
the rural
subsistence
areas
isthat
in fact
more
likely.migration
The mechanism
requires
The
presented
in
paper,
instead,
predicts
modernization,
parametrized
by
rights
forrights
subsistence
to both
increase
the
costs
ofwith
rural-urban
and
thea
that theory
elite
landowners
hold
significant
political
power.
This
social
group supports
badreduce
property
rights
for
subsistence
farmers
to
both
increase
the
costs
of
rural-urban
migration
and
reduce
the
that
elite
landowners
hold
significant
political
power.
This
social
group
supports
bad
property
wage
thesubsistence
urban-industrial
dual
economy
which
institutions
of limited
productivity
ofinthe
Both aofrural
these
effects
create in
a cheap
supply
of rural
labour
rightsincrease
for subsistence
farmers tosector.
bothsector,
increase
the
costs
of
rural-urban
migration
and
reduce
the
productivity
of the subsistence
Both of the
these
effects
create a cheap
supply and
of rural
labour
rights
forrights
subsistence
farmers
tosector.
both
increase
costs
of rural-urban
migration
reduce
the
property
persist
in
the
rural
subsistence
areas
is
in
fact
more
likely.
The
mechanism
requires
for
landowners,
increasing
their
profits.
productivity of the subsistence sector. Both of these effects create a cheap supply of rural labour
for landowners,
increasing
their sector.
profits. Both of these effects create a cheap supply of rural labour
productivity
of
subsistence
that
elitecase
landowners
holdprovides
significant
political
power.
Thisprediction,
social group
supports
property
The
of the
Rhodesia
a clear
validation
of this
as well
as thebad
mechanisms
for landowners,
increasing
their
profits.
The case of Rhodesia
provides
a clear validation of this prediction, as well as the mechanisms
for
landowners,
increasing
their
profits.
rights
subsistence
to both
increase
the
costs
ofthe
rural-urban
migration
andmechanisms
reduce
the
involved.
It
also
falls farmers
in line
with
the
expected
effects
industrialas
elite
in Section
Theforcase
of Rhodesia
provides
a clear
validation
of on
this
prediction,
welldiscussed
as the
involved.
It also
falls in line
with the
expected
effects
on
the
industrialaselite
discussed
in Section
The
case
of
Rhodesia
provides
a
clear
validation
of
this
prediction,
well
as
the
mechanisms
productivity
of the
subsistence
sector.
Both
of these
cheap
supply
rural
labour
5.
In particular,
around
the 1950s,
theexpected
industrial-urban
was astarting
todiscussed
playofan
important
involved.
It also
falls
in line
with
the
effectseffects
onsector
thecreate
industrial
elite
in Section
5. In particular,
around
the 1950s,
theexpected
industrial-urban
sector
was starting
todiscussed
play an important
involved.
It
also
falls
in
line
with
the
effects
on
the
industrial
elite
in
Section
for
landowners,
increasing
their
profits.
role.
The
industrial
elite,the
hurt
by
the
of traditional
forms
of tenure
in theancountryside
5. In
particular,
around
1950s,
thepersistence
industrial-urban
sector was
starting
to play
important
role.
The
industrial
elite,
hurt
by
the
persistence
of traditional
forms
of tenure
in theancountryside
5.
In
particular,
around
the
1950s,
the
industrial-urban
sector
was
starting
to
play
important
The
case
of
Rhodesia
provides
a
clear
validation
of
this
prediction,
as
well
as
the
mechanisms
which
discouraged
and created
an stagnant
agricultural
for a
role. The
industrialpermanent
elite, hurt migration
by the persistence
of traditional
forms
of tenuresector,
in thepushed
countryside
whichThe
discouraged
permanent
migration
and created
an stagnant
agricultural
sector,
pushed
for a
role.
industrial
elite,
hurt
by
the
persistence
of
traditional
forms
of
tenure
in
the
countryside
involved.
It also
falls
inelite,
line with
the expected
effects
the
elite
discussed
in Section
reform.
The
landowner
however,
resisted
the
change,
andindustrial
given
their
political
largely
which discouraged
permanent
migration
and created
anonstagnant
agricultural
sector,power
pushed
for a
reform.discouraged
The landowner
elite, however,
resisted
the change,
and given
their political
power
largely
which
permanent
migration
and created
an stagnant
agricultural
sector,
pushed
for a
5.
In
particular,
around
the
1950s,
the
industrial-urban
sector
was
starting
to
play
an
important
had
its
way.
reform. The landowner elite, however, resisted the change, and given their political power largely
had its way.
reform.
The
elite,
however,
resisted
and forms
given
their
political
power
largely
role.
The
industrial
elite,
hurt
by the the
persistence
ofchange,
traditional
tenure
in
countryside
1951,
alandowner
key piece
of
legislation,
Nativethe
Land
Husbandry
Actof
(NLHA)
wasthe
adopted.
The
hadIn
its
way.
In
1951,
a key piece of legislation, the Native Land Husbandry Act (NLHA) was adopted. The
had
its
way.
which
discouraged
permanent
migration
created
stagnant
sector,
pushed
stated
aims awere
replace
the
traditional
system
ofan
native
land agricultural
tenure
under
chiefadopted.
control for
with
In 1951,
key to
piece
of legislation,
theand
Native
Land
Husbandry
Act (NLHA)
was
Thea
stated
aims awere
to
replace
the traditional
system
of native
land tenure
under was
chiefadopted.
control with
In
1951,
key
piece
of
legislation,
the
Native
Land
Husbandry
Act
(NLHA)
The
reform.
The
landowner
elite,the
however,
resisted
the
change,
and
their
political
power
largely
astated
system
of individual
tenure
under
government
control
and
to given
promote
“good”
husbandry.
The
aims
were
to replace
traditional
system
of native
land
tenure
under
chief
control
with
a system
of individual
tenurethe
under
government
control
and land
to promote
“good”chief
husbandry.
The
stated
aims
were
to
replace
traditional
system
of
native
tenure
under
control
with
had
its way.
a system
of individual tenure under government control and to promote “good” husbandry. The
a system
of individual tenure under government control and to promote “good” husbandry. The
9In 1951, a key piece of legislation, the Native Land Husbandry Act (NLHA) was adopted. The
For instance, in Lewis (1954), capital accumulation or productivity gains in the modern sector pull “unlimited
9
motivation
was
the
traditional
scheme
wasorof
hurting
capital,
especially
industries
Foraims
instance,
inthat
Lewis
(1954),
capital
accumulation
productivity
gains tenure
inand
the
modern
sector
pull
“unlimited
supplies
of
labour”
out
of
the
subsistence
sector.
Models
thenative
dualindustrial
economy
growth
with
structural
change
stated
were
to
replace
the
traditional
system
of
land
under
chief
control
with
9
For instance, in Lewis (1954), capital accumulation or productivity gains in the modern sector pull “unlimited
supplies
ofsome
labour”
out
of the subsistence
sector.
Models
of the
economy
and
growth
with structural
change
overcome
of thestabilization
limitations
of the
Lewis’
model,
but
the
idea
accumulation
of capital
and knowledge
in
9
requiring
labour
(Arrighi,
1970,
p. share
223).
Asdual
thethat
official
discourse
noted:
For of
instance,
inout
Lewis
(1954),
capital
accumulation
orcontrol
productivity
gains
inand
the growth
modern
sector
pull
“unlimited
a
system
of
individual
tenure
under
government
and
to
promote
“good”
husbandry.
The
supplies
labour”
of
the
subsistence
sector.
Models
of
the
dual
economy
with
structural
change
overcome
some
of
the
limitations
of
the
Lewis’
model,
but
share
the
idea
that
accumulation
of
capital
and
knowledge
in
the modern economy gradually reduces the size of the subsistence sector. Examples range from models of unbalanced
supplies
ofsome
labour”
out
of the subsistence
sector.
Models
of the sector.
dual
economy
and
growth
with
structural
change
overcome
ofon
thedemand
limitations
of
the Lewis’
model,
but
share
idea that
accumulation
of
capital
andofknowledge
in
the
modern
economy
gradually
the
size
of the
subsistence
range
from
models
growth
focusing
sidereduces
forces
(e.g.,
Kongsamut
et al. the
(2001))
toExamples
models
where
income
growth
isunbalanced
associated
overcome
some
of
the
limitations
of
the
Lewis’
model,
but
share
the
idea
that
accumulation
of
capital
and
knowledge
in
the
modern
economy
gradually
reduces
the
size
of
the
subsistence
sector.
Examples
range
from
models
of
unbalanced
“Grave
from
and stagnant
communities
scraping
a bare
existence
growth
focusingproblems
on
demandflow
sidereduction
forcescrowded
(e.g.,
Kongsamut
et
al. and
(2001))
to models
where
income
growth
is associated
with information
accumulation,
of idiosyncratic
risk,
reduction
of credit
constraints
(e.g.
Banerjee
and
9
the
modern
economy
gradually
reduces
the
size
of the subsistence
sector.
Examples
range
fromsector
models
of
unbalanced
growth
focusing
on
demand
side
forces
(e.g.,
Kongsamut
et
al.
(2001))
to
models
where
income
growth
is
associated
with
information
accumulation,
reduction
of
idiosyncratic
risk,
and
reduction
of
credit
constraints
(e.g.
Banerjee
and
For
instance,
in
Lewis
(1954),
capital
accumulation
or
productivity
gains
in
the
modern
pull
“unlimited
Newman
(1998),
Acemoglu
andcountryside,
Zilibotti (1999)).
from
theon
exhausted
and spilling
as and
an reduction
inefficient
labourgrowth
forceBanerjee
growth
focusing
demand
sidesubsistence
forces (e.g.,
Kongsamut
(2001))
models
where
income
isinto
associated
with
information
accumulation,
reduction
ofsector.
idiosyncratic
risk,
of migrant
credit
constraints
and
Newman
(1998),
Acemoglu
and
Zilibotti
(1999)).
supplies
of
labour”
out of the
Modelset
ofal.the
dual to
economy
and
growth
with (e.g.
structural
change
with
information
accumulation,
reduction
of
idiosyncratic
risk,
and
reduction
of
credit
constraints
(e.g.
Banerjee
Newman
(1998),
Acemoglu
and
Zilibotti
(1999)).
industrial
centers
many
miles
from
their
and
families”
(cited inofFloyd
p. and
overcome
some of the
limitations
of the
Lewis’
model,
buthomes
share the
idea
that accumulation
capital (1959,
and knowledge
in
Newman
(1998),
Acemoglu
andreduces
Zilibottithe
(1999)).
25
the modern
economy
gradually
size of the subsistence
sector. Examples range from models of unbalanced
114)).
growth focusing on demand side forces (e.g., Kongsamut 25
et al. (2001)) to models where income growth is associated
25
with information
accumulation,
reduction
of
idiosyncratic
risk, and
reduction
of credit
constraints
(e.g. Banerjee
“The time has come when all indigenous natives
can
no longer
continue
to maintain
a and
25
Newman (1998), Acemoglu and Zilibotti (1999)).
dual existence as part-time employment in the European areas and part-time farming
in the Native reserves for, apart from its impossibility,
it does not conduce to efficiency
25
27
in either area” (cited in Alexander (2006, pg.46)).
motivation was that the traditional scheme was hurting industrial capital, especially industries
motivation was that the traditional scheme was hurting industrial capital, especially industries
requiring labour
stabilization
(Arrighi,scheme
1970, p.
As the
official discourse
noted:
motivation
was that
the traditional
was223).
hurting
industrial
capital, especially
industries
requiring
stabilization
(Arrighi,scheme
1970, p.
As the
official discourse
noted:
motivationlabour
was that
the traditional
was223).
hurting
industrial
capital, especially
industries
requiring labour stabilization (Arrighi, 1970, p. 223). As the official discourse noted:
requiring
labour
stabilization
(Arrighi,
1970,
223). As
the officialscraping
discoursea bare
noted:
“Grave
problems
flow from
crowded
and p.
stagnant
communities
existence
“Grave problems flow from crowded and stagnant communities scraping a bare existence
from theproblems
exhausted
countryside,
andand
spilling
as an
inefficient migrant
into
“Grave
flow
from crowded
stagnant
communities
scrapinglabour
a bare force
existence
from
theproblems
exhausted
countryside,
andand
spilling
as an
inefficient migrant
labour
force
into
“Grave
flow
from
crowded
stagnant
communities
scraping
a
bare
existence
industrial
centers many
miles from
homes
andinefficient
families” migrant
(cited inlabour
Floyd force
(1959,
p.
from
the exhausted
countryside,
andtheir
spilling
as an
into
industrial
centers many
miles from
their
homes
andinefficient
families” migrant
(cited inlabour
Floyd force
(1959,
p.
from
the
exhausted
countryside,
and
spilling
as
an
into
114)).
industrial
centers many miles from their homes and families” (cited in Floyd (1959, p.
114)).
industrial
centers many miles from their homes and families” (cited in Floyd (1959, p.
114)).
“The time has come when all indigenous natives can no longer continue to maintain a
114)).
“The time has come when all indigenous natives can no longer continue to maintain a
dual existence
part-time
employment
the European
areas continue
and part-time
farminga
“The
time has as
come
when all
indigenous in
natives
can no longer
to maintain
dual
existence
as
part-time
employment
in
the European
areas continue
and part-time
farming
“The
time
has
come
when
all
indigenous
natives
can
no
longer
to
maintain
a
in theexistence
Native reserves
for, apart
from its impossibility,
it does
not
conduce
to efficiency
dual
as part-time
employment
in the European
areas
and
part-time
farming
in
the
Native
reserves
for,
apart
from
its
impossibility,
it
does
not
conduce
to
efficiency
dual
existence
as
part-time
employment
inpg.46)).
the European areas and part-time farming
either
area”reserves
(cited
in
Alexander
(2006,
in the
Native
for,
apart from
its impossibility,
it does not conduce to efficiency
in the
either
area”
(cited
in
Alexander
(2006,
pg.46)).
Native reserves for, apart from its impossibility, it does not conduce to efficiency
in either area” (cited in Alexander (2006, pg.46)).
either
(cited
in with
Alexander
(2006, pg.46)).
It in
was
thus area”
expected
that
the introduction
of individual rights, those excluded from land
It was thus expected that with the introduction of individual rights, those excluded from land
would
provide
stable labour
for industry,
and security
of tenurerights,
in thethose
Reserves
wouldfrom
improve
It was
thus aexpected
that with
the introduction
of individual
excluded
land
would
provide
aexpected
stable labour
for industry,
and security
of tenurerights,
in thethose
Reserves
wouldfrom
improve
It
was
thus
that
with
the
introduction
of
individual
excluded
land
productivity.
This,
however,
exactly
opposes
what
the
rural
elite
in
the
model
economy
of
Section
would provide a stable labour for industry, and security of tenure in the Reserves would improve
productivity.
This,
however,
exactly
opposesand
what
the rural
elite ininthe
economy
ofimprove
Section
would
a stable
labour
for industry,
security
of tenure
themodel
Reserves
would
2 looksprovide
for. According
to theexactly
results
of Proposition
the
rural
elite
these
aims
for the
productivity.
This, however,
opposes
what the3,rural
elite in
theopposes
model economy
of Section
2 looks for. According
to theexactly
resultsopposes
of Proposition
3,rural
the rural
elite
opposes
these aims
for the
productivity.
This,
however,
what
the
elite
in
the
model
economy
of
Section
reason
industrial
sector
supports
them.
2same
looks
for. the
According
to the
results
of Proposition
3, the rural elite opposes these aims for the
reason
industrial
sector
supports
them.
2same
looks
for. the
According
to introduce
the
results
of Proposition
elite opposes
for out
the
Ultimately,
to
private
property 3,
onthe
therural
traditional
Africanthese
sectoraims
turned
same
reason thepolicies
industrial
sector supports
them.
Ultimately,
policies
to introduce
privatethem.
property on the traditional African sector turned out
same
reason
industrial
sector
to
be
partial the
and
timid.toWhile
thesupports
NLHA
supposedly
revolutionary,
and “directly
repudiated
Ultimately,
policies
introduce
privatewas
property
on the
traditional African
sector turned
out
to be
partial and
timid.toWhile
the NLHA
was
supposedly
revolutionary,
and “directly
repudiated
Ultimately,
policies
introduce
private
property
on
the
traditional
African
sector
turned
out
‘customary’
rights
land was
in favour
of individual
land right
‘secular
to be partialand
and communal
timid. While
the to
NLHA
supposedly
revolutionary,
and holders
“directlyand
repudiated
‘customary’
and
communal
rights
to
land
in
favour
of
individual
land
right
holders
and
‘secular
to be power’,
partial and
timid.
While
the NLHA
was supposedly
revolutionary,
and
“directly
repudiated
state
[it] was
to be
tempered
a host
of restrictions”
(Alexander,
2006).
Theand
restrictions
‘customary’ and
communal
rights to by
land
in favour
of individual
land right
holders
‘secular
state
power’,
[it]
was
to
be
tempered
by
a
host
of
restrictions”
(Alexander,
2006).
The
restrictions
‘customary’
and
communal
rights
to
land
in
favour
of
individual
land
right
holders
and
‘secular
included:
only[it]those
who
andbyowned
at the time(Alexander,
of the Act’s2006).
implementation
were
state power’,
was to
befarmed
tempered
a hoststock
of restrictions”
The restrictions
included:
only
those
who
farmed
and
owned
stock
at
the
time
of
the
Act’s
implementation
were
state
power’,
[it]
was
to
be
tempered
by
a
host
of
restrictions”
(Alexander,
2006).
The
restrictions
eligible
foronly
rights;
land
rights
could
notowned
be used
as at
collateral
forofloans;
and the
size of the arable
included:
those
who
farmed
and
stock
the time
the Act’s
implementation
were
eligible
foronly
rights;
land
rights
could
notowned
be used
as at
collateral
forofloans;
and the
size of the arable
included:
those
who
and
stock
the time
the Act’s
implementation
were
allocations
number
of farmed
stock
rights
eligible for and
rights;
land rights
could
notwas
be limited.
used as collateral for loans; and the size of the arable
allocations
and
number
of stock
rights
eligible
for the
rights;
landwhich
rights
could
notwas
be limited.
used
as collateral
forofloans;
and the size
of the was
arable
Hence,
could
have
been
in theory
a triumph
manufacturing
interests,
at
allocations
andNLHA
number
of stock
rights
was
limited.
Hence, the
NLHA
which
couldrights
have was
beenlimited.
in theory a triumph of manufacturing interests, was at
allocations
and
number
of
stock
bestHence,
a compromise
between
farmers
and
industry
(1980, interests,
p. 230), Arrighi
the NLHA
which settler
could have
been
in secondary
theory a triumph
of(Duggan
manufacturing
was at
bestHence,
a compromise
between
settler
farmers
and
secondary
industry
(Duggan
(1980, interests,
p. 230), Arrighi
the
NLHA
which
could
have
been
in
theory
a
triumph
of
manufacturing
was
at
(1973)
and Phimister
(1993)).
Underlying
was the
political
power(1980,
of white
The
best
a compromise
between
settler
farmers this
and result
secondary
industry
(Duggan
p. farmers.
230), Arrighi
(1973)
and Phimister
(1993)).
Underlying
this
was the
political
power(1980,
of white
The
best a compromise
between
settler
farmers
and result
secondary
industry
(Duggan
p. farmers.
230), Arrighi
impossibility
of truly
revolutionary
changes
policy
by aofsenior
of The
the
(1973)
and Phimister
(1993)).
Underlying
thisinresult
waswas
therecognized
political power
whiteofficial
farmers.
impossibility
of truly (1993)).
revolutionary
changes
inresult
policy
was
recognized
by aofsenior
official
of The
the
(1973)
and
Phimister
Underlying
this
was
the
political
power
white
farmers.
Native AffairsofDepartment.
He remarked
at inthepolicy
time,was
referring
to an by
increase
in the
minimum
impossibility
truly revolutionary
changes
recognized
a senior
official
of the
Native
AffairsofDepartment.
He remarked
at inthepolicy
time,was
referring
to an by
increase
in the
minimum
impossibility
truly
revolutionary
changes
recognized
awas
senior
official
of
wage
that
would
stabilize
labour
in the
urban
areas:
“ifreferring
a minimum
wage
introduced
in the
the
Native
Affairs
Department.
He remarked
at the
time,
to an
increase
in the minimum
wage
that
would
stabilize
labour
in
the
urban
areas:
“if
a
minimum
wage
was
introduced
in the
Native
Affairs
Department.
He
remarked
at
the
time,
referring
to
an
increase
in
the
minimum
towns
you are
bound
to have
repercussions
amongst
community
and introduced
today the farming
wage that
would
stabilize
labour
in the urban
areas:the“iffarming
a minimum
wage was
in the
towns
you are
bound
to have
repercussions
amongst
the“iffarming
community
and introduced
today the farming
wage
that
would
stabilize
labour
in
the
urban
areas:
a
minimum
wage
was
in
the
community
rules
the
country,
so
that
flattens
out
the
minimum
wage
straight
away”
(Arrighi,
1973,
towns you are bound to have repercussions amongst the farming community and today the farming
community
rules
the
country,
so
that
flattens
out
the
minimum
wage
straight
away”
(Arrighi,
1973,
towns
are bound
to have repercussions amongst the farming community and today the farming
p.
362,you
emphasis
added).
community
rules the
country, so that flattens out the minimum wage straight away” (Arrighi, 1973,
p.
362, emphasis
added).
community
the
country,
that flattens
outthe
theLand
minimum
wage straight
away”
(Arrighi,
1973,
Alsoemphasis
in rules
the 1950s,
liberalssofailed
to repeal
Apportionment
Act
which
had created
p. 362,
added).
Alsoemphasis
in the 1950s,
liberals failed to repeal the Land Apportionment Act which had created
p. 362,
added).
Native
Areas
and forbidden
fromLand
buying
land in European
areas.had
Butcreated
white
AlsoPurchase
in the 1950s,
liberals
failed toAfricans
repeal the
Apportionment
Act which
Native
Purchase
Areas liberals
and forbidden
Africans
fromLand
buying
land in European
areas.had
Butcreated
white
Also
in
the
1950s,
failed
to
repeal
the
Apportionment
Act
which
farmers
reaffirmedAreas
their and
political
powerAfricans
when the
United
Federal
lost the areas.
1962 elections
to
Native Purchase
forbidden
from
buying
land Party
in European
But white
farmers
reaffirmedAreas
their and
political
powerAfricans
when the
United
Federal
Party
lost the areas.
1962 elections
to
Native
Purchase
forbidden
from
buying
land
in
European
But
white
the
Rhodesian
Front
Party
(Mosley
(1983,
and Duggan
(1980,lost
p. the
232))
andelections
the Land
farmers
reaffirmed
their
political
power
whenp.the29)
United
Federal Party
1962
to
the
Rhodesian
Front
Party
(Mosley
(1983,
and Duggan
(1980,lost
p. the
232))
andelections
the Land
farmers
reaffirmed
their
political
power
whenp.the29)
United
Federal Party
1962
to
the Rhodesian Front Party (Mosley (1983, p. 29) and Duggan (1980, p. 232)) and the Land
the Rhodesian Front Party (Mosley (1983, p. 29) and Duggan (1980, p. 232)) and the Land
Apportionment Act was confirmed by the 1969 26
Land Tenure Act. Duggan (1980) interprets these
26
measures in the following way:
26
26
“The Rhodesian state had thus come full circle. Its first coherent agricultural policy, in
the decade before World War I, was to eliminate the commercial production of Africans
and encourage that of settlers. Industrialization after 1940 produced and ambivalent
28
government policy; protection of settler farmers was costly to the growing manufacturing
sector (...) During the 1960s, with the Rhodesian Front in power, ambivalence towards
Apportionment Act was confirmed by the 1969 Land Tenure Act. Duggan (1980) interprets these
Apportionment Act was confirmed by the 1969 Land Tenure Act. Duggan (1980) interprets these
measures
in the Act
following
way:
Apportionment
was confirmed
by the 1969 Land Tenure Act. Duggan (1980) interprets these
measures in the Act
following
way:
Apportionment
was confirmed
by the 1969 Land Tenure Act. Duggan (1980) interprets these
measures in the following way:
measures
the following
way:
“TheinRhodesian
state
had thus come full circle. Its first coherent agricultural policy, in
“The Rhodesian state had thus come full circle. Its first coherent agricultural policy, in
the decade
beforestate
World
War
I, come
was tofull
eliminate
thefirst
commercial
Africans
“The
Rhodesian
had
thus
circle. Its
coherentproduction
agriculturalofpolicy,
in
the decade
beforestate
World
War
I, come
was tofull
eliminate
thefirst
commercial
production
ofpolicy,
Africans
“The
Rhodesian
had
thus
circle.
Its
coherent
agricultural
in
and decade
encourage
that
of settlers.
Industrialization
after
1940 produced
and ambivalent
the
before
World
War I, was
to eliminate the
commercial
production
of Africans
and
encourage
that
of settlers.
Industrialization
after
1940 produced
and ambivalent
the
decade
before
World
War I, was
to eliminate
the
commercial
production
of Africans
government
policy;
farmers was
costly
to the
growing
manufacturing
and
encourage
thatprotection
of settlers.of settler
Industrialization
after
1940
produced
and
ambivalent
government
policy;
protection
of
settler
farmers
was
costly
to
the
growing
manufacturing
and
encourage
that of 1960s,
settlers. Industrialization
after 1940
produced
and ambivalent
sector
(...) During
the Rhodesian
ambivalence
towards
government
policy; the
protection with
of settler
farmers wasFront
costlyintopower,
the growing
manufacturing
sector
(...)
During
the
1960s,
with
the
Rhodesian
Front
in
power,
ambivalence
towards
government
policy;
protection
of
settler
farmers
was
costly
to
the
growing
manufacturing
African(...)
commercial
agriculture
disappeared”
(p. 237).
sector
During the
1960s, with
the Rhodesian
Front in power, ambivalence towards
African
commercial
agriculture
disappeared”
(p. 237).
sector (...)
During the
1960s, with
the Rhodesian
Front in power, ambivalence towards
African commercial agriculture disappeared” (p. 237).
African
commercial
agriculture
disappeared”
(p. 237).
The
persistence
of a rural
dual economy
in Rhodesia
after the rise of the industrial sector can
The persistence of a rural dual economy in Rhodesia after the rise of the industrial sector can
therefore
be interpreted
terms
the theoretical
analysis.
onsector
a context
The persistence
of a in
rural
dualofeconomy
in Rhodesia
afterHowever,
the rise when
of thefocusing
industrial
can
therefore
be interpreted
in
terms
ofeconomy
the theoretical
analysis.
However,
when
focusing
onsector
a context
The
persistence
of
a
rural
dual
in
Rhodesia
after
the
rise
of
the
industrial
can
with
low
urban
wages,
the
theoretical
predictions
seem
to
present
a
puzzle.
In
particular,
without
therefore be interpreted in terms of the theoretical analysis. However, when focusing on a context
with low urban
wages, the
predictions
seem
to present
a puzzle.
particular,
without
therefore
be
interpreted
in theoretical
terms
of the
theoretical
analysis.
However,
when In
focusing
on aproperty
context
a relevant
industrial
sector,
the model
predicts
thatseem
landowner
elitesa should
for good
with
low urban
wages,
the theoretical
predictions
to present
puzzle.push
In particular,
without
a relevant
industrial
sector,
the model predicts
thatseem
landowner
elitesa should
for good property
with
low
urban
wages,
the theoretical
predictions
to present
puzzle.push
In particular,
without
institutions.
is nopredicts
threat of
migration
of elites
subsistence
rural
arights
relevant
industrial When
sector, there
the model
that
landowner
should workers
push forfrom
good the
property
institutions.
When
there
is nopredicts
threat of
migration
of elites
subsistence
workers
from
the
rural
arights
relevant
industrial
sector,
the
model
that
landowner
should
push
for
good
property
to the institutions.
urban areas, When
promoting
reformsofinsubsistence
the peasantworkers
sector and
the
rights
thereefficiency-enhancing
is no threat of migration
fromtaxing
the rural
to the institutions.
urban areas, When
promoting
efficiency-enhancing
reformsofinsubsistence
the peasantworkers
sector and
taxing
the
rights
there
is
no
threat
of
migration
from
the
rural
returns
is in theory
a better strategy.
But then, why
didn’tinRhodesian
white
farmers
introduce
to
the urban
areas, promoting
efficiency-enhancing
reforms
the peasant
sector
and taxing
the
returns
is in theory
a better strategy.
But then, why
didn’tinRhodesian
white
farmers
introduce
to
the
urban
areas,
promoting
efficiency-enhancing
reforms
the
peasant
sector
and
taxing
the
more complete
property
rightsstrategy.
institutions
the native
areas early
on? I white
conclude
this section
by
returns
is in theory
a better
Butinthen,
why didn’t
Rhodesian
farmers
introduce
more
complete
property
rights
institutions
in
the
native
areas
early
on?
I
conclude
this
section
by
returns
is
in
theory
a
better
strategy.
But
then,
why
didn’t
Rhodesian
white
farmers
introduce
suggesting
a resolution
this puzzle.
more
complete
propertyofrights
institutions in the native areas early on? I conclude this section by
suggesting
a resolution
ofrights
this puzzle.
more
complete
property
institutions
areasthat
early
on? I conclude
this to
section
by
The
key
to
the
resolution
of
this puzzleinisthe
to native
recognize
landowners’
capacity
tax the
suggesting a resolution of this puzzle.
The
key
to
the
resolution
of
this
puzzle
is
to
recognize
that
landowners’
capacity
to
tax
the
suggesting asector,
resolution of thisearly
puzzle.
subsistence
on, puzzle
was quite
limited.
African
weaknesscapacity
is well-established,
The key to theespecially
resolution of this
is to
recognize
thatstate
landowners’
to tax the
subsistence
sector,
especially
early
on, puzzle
was quite
limited.
African
state
weaknesscapacity
is well-established,
The
key
to
the
resolution
of
this
is
to
recognize
that
landowners’
to tax and
the
and
lies
at
the
center
of
many
academic
debates
(see
e.g.
Herbst.
(2000)).
While
Rhodesia,
subsistence sector, especially early on, was quite limited. African state weakness is well-established,
and
lies at the
center
of many
academic
debates
(see e.g.
Herbst.
(2000)).
While
Rhodesia, and
subsistence
sector,
early
on, wascharacteristics
quite limited.
African
state
weakness
is well-established,
Southern
inespecially
general,
had
special
in
the
continent
given
the
relatively
and lies atAfrica
the center
of many
academic
debates (see e.g.
Herbst.
(2000)).
While
Rhodesia, high
and
Southern
Africa
in general,
hadacademic
special characteristics
in the
continent
given
the relatively
high
and
lies
at
the
center
of
many
debates
(see
e.g.
Herbst.
(2000)).
While
Rhodesia,
and
proportion
of white
settlers,had
state
capacity
was undoubtedly
limited. Alexander
(2006) puts
it
Southern Africa
in general,
special
characteristics
in the continent
given the relatively
high
proportion
of white
settlers,had
state
capacity
was undoubtedly
limited. Alexander
(2006) puts
it
Southern
Africa
in
general,
special
characteristics
in
the
continent
given
the
relatively
high
clearly,
referring
to the
processstate
by which
power
over
Africans and
their land
was constituted:
“This
proportion
of white
settlers,
capacity
was
undoubtedly
limited.
Alexander
(2006) puts
it
clearly,
referring
to the
processstate
by which
power
over
Africans and
their land
was constituted:
“This
proportion
of
white
settlers,
capacity
was
undoubtedly
limited.
Alexander
(2006)
puts
it
was
in part
a story
of process
dispossession
andpower
repression,
but it was
story
of constituted:
contradiction“This
and
clearly,
referring
to the
by which
over Africans
and also
theiraland
was
was
in part
a story
of process
dispossession
andpower
repression,
but it was
story
of constituted:
contradiction“This
and
clearly,
referring
to the
by goals
which
Africans
and also
theiraland
was
compromise
which
state’s
were
farover
from
easily
realised”
17).
she
was in part ainstory
ofthe
dispossession
and
repression,
but
it was
also a(p.
story
of State-making,
contradiction and
compromise
instory
whichofthe
state’s goals
were
far frombut
easily
realised”
(p.
17).of State-making,
she
was
in
part
a
dispossession
and
repression,
it
was
also
a
story
contradiction
and
argues,
was constantly
challenged
by Africans,
who
“spread
from hilltop
fortifications;
they fled
compromise
in which the
state’s goals
were far
from
easilyout
realised”
(p. 17).
State-making,
she
argues,
was constantly
challenged
by Africans,
who
“spread
from hilltop
fortifications;
they fled
compromise
in which
the
state’s
goals
were
far
from
easilyout
realised”
(p. 17).
State-making,
she
from
landlords;
they
sought
to
evade
tax
”
(p.
20,
emphasis
added).
argues, was constantly challenged by Africans, who “spread out from hilltop fortifications; they fled
from
landlords;
they
sought
to
evade
tax
”
(p.
20,
emphasis
added).
argues,
was constantly
challenged
Africans, who
“spread
out from hilltop
fortifications;
fled
shown
inthey
the sought
Corollary
to by
Proposition
3, in
these circumstances
of limited
abilitythey
to raise
fromAslandlords;
to evade
tax ” (p. 20,
emphasis
added).
shown inthey
the sought
Corollary
to Proposition
3, in
these circumstances
limited ability to raise
fromAslandlords;
to evade
tax
” (p.increasing
20,
emphasis
added).sectorofproductivity
taxes
ruralinelite’s
attention
from
subsistence
as atomeans
Asthe
shown
the Corollary
toshifts
Proposition
3, in these
circumstances
of limited ability
raise
taxes
the
ruralinelite’s
attentiontoshifts
from increasing
subsistence
sectorofproductivity
as atomeans
As
shown
the
Corollary
Proposition
3,
in
these
circumstances
limited
ability
raise
to
increase
redistribution,
to
lowering
such
productivity
in
order
to
produce
cheap
and
abundant
taxes the rural elite’s attention shifts from increasing subsistence sector productivity as a means
to increase
redistribution,
to lowering
such productivity
in order tosector
produce
cheap andasabundant
taxes
the
rural
elite’s
shifts from
increasingcorresponds
subsistence
productivity
a means
labour.
Indeed,
in thisattention
casetothe
political
equilibrium
FPM-type
equilibrium
as in
to increase
redistribution,
lowering
such
productivity
in order to
to aproduce
cheap
and abundant
labour.
Indeed,
in this casetothe
political
equilibrium
corresponds
to
aproduce
FPM-type
equilibrium
as in
to
increase
redistribution,
lowering
such
productivity
in
order
to
cheap
and
abundant
Proposition
1. As
expected
in apolitical
FPM solution
with corresponds
low urban wages,
the rural equilibrium
elites competing
labour. Indeed,
in this
case the
equilibrium
to a FPM-type
as in
Proposition
1. As
expected
in apolitical
FPM solution
with corresponds
low urban wages,
the rural equilibrium
elites competing
labour.
Indeed,
in
this
case
the
equilibrium
to
a
FPM-type
as
in
for
labour had
to resent
and impose
the wages,
maximum
distortions
on
Proposition
1. reason
As expected
in anative
FPMprosperity
solution with
low urban
the possible
rural elites
competing
for labour had
to resent
and impose
the wages,
maximum
distortions
on
Proposition
1. reason
As expected
in anative
FPMprosperity
solution with
low urban
the possible
rural elites
competing
natives.
for labour had reason to resent native prosperity and impose the maximum possible distortions on
natives.
for
labour
had reason
to resent
native
prosperity
anddid
impose
maximumthe
possible
distortions
on
The historical
record
shows that
white
colonists
in factthe
impoverish
traditional
economy
natives.
The
historical
record
shows
that
white
colonists
did
in
fact
impoverish
the
traditional
economy
natives.
as
much
as possible
to force
peasants
into the
labourdid
market.
were
aware
The historical
record
shows
that white
colonists
in factContemporary
impoverish theobservers
traditional
economy
as much
as possible
to force
peasants
into the
labourdid
market.
were
aware
The historical
record
shows
that white
colonists
in factContemporary
impoverish theobservers
traditional
economy
as much as possible to force peasants into the labour market. Contemporary observers were aware
as much as possible to force peasants into the labour
27 market. Contemporary observers were aware
27 supply, to the extreme that a native Commisabout the impacts of native prosperity on the labour
27
sioner candidly admitted in 1906 that “[Locusts 27
are] not an unmitigated evil, for a really abundant
harvest of kaffir corn and mwalies would probably have the effect of reducing the number of Native
labourers 50 per cent” (see Palmer (1977b, p. 78-79) for other similar testimonies). Impoverishing
subsistence agriculture meant increasing taxes, and allocating the worst tracts of lands for black
29
Reserves.10 It also meant no incentives to introduce innovations in property rights institutions.
Finally, an interesting piece of evidence highlighting the importance of the theoretical mecha-
about the impacts of native prosperity on the labour supply, to the extreme that a native Commisabout the impacts of native prosperity on the labour supply, to the extreme that a native Commissioner
candidly
admitted
in 1906
that “[Locusts
are] not
an unmitigated
evil,that
for a native
really abundant
about the
impacts
of native
prosperity
on the labour
supply,
to the extreme
Commissioner candidly admitted in 1906 that “[Locusts are] not an unmitigated evil, for a really abundant
harvest
of
kaffir
corn
and
mwalies
would
probably
have
the
effect
of
reducing
the
number
of
Native
sioner candidly admitted in 1906 that “[Locusts are] not an unmitigated evil, for a really abundant
harvest of kaffir corn and mwalies would probably have the effect of reducing the number of Native
labourers
percorn
cent”and
(see
Palmerwould
(1977b,
p. 78-79)
forthe
other
similar
testimonies).
Impoverishing
harvest of 50
kaffir
mwalies
probably
have
effect
of reducing
the number
of Native
labourers 50 per cent” (see Palmer (1977b, p. 78-79) for other similar testimonies). Impoverishing
subsistence
agriculture
meant
increasing
taxes,
and
allocating
the
worst
tracts
of
lands
for black
labourers 50 per cent” (see Palmer (1977b, p. 78-79) for other similar testimonies). Impoverishing
subsistence
agriculture
meant
increasing
taxes,
and
allocating
the
worst
tracts
of
lands
for black
about
the
impacts
of
native
prosperity
on
the
labour
supply,
to
the
extreme
that
a
native
CommisIt also meant
no incentives
introduce
in property
rights
institutions.
Reserves.10
subsistence
agriculture
meant
increasingtotaxes,
and innovations
allocating the
worst tracts
of lands
for black
10
It also
meantin
no1906
incentives
to introduce
innovations
in property
rights
institutions.
Reserves.
sioner
candidly
admitted
that
“[Locusts
are]
not
an
unmitigated
evil,
for
a
really
abundant
10
Finally, an
interesting
piece
of evidence
highlighting
the importance
of the
theoretical
mechaIt also
meant no
incentives
to introduce
innovations
in property
rights
institutions.
Reserves.
Finally,
an interesting
piece ofwould
evidence
highlighting
theeffect
importance
of the
theoretical
mechaharvest
of
kaffir
corn
and
mwalies
probably
have
the
of
reducing
the
number
of
Native
nisms
is thean
fact
that, in the
very
yearshighlighting
of white settlement,
there is
clear
record ofmechanative
Finally,
interesting
piece
of early
evidence
the importance
of athe
theoretical
nisms
is
the
fact
that,
in
the
very
early
years
of
white
settlement,
there
is
a
clear
record
of
native
labourers
50
per
cent”
(see
Palmer
(1977b,
p.
78-79)
for
other
similar
testimonies).
Impoverishing
prosperity:
nisms
is the fact that, in the very early years of white settlement, there is a clear record of native
prosperity: agriculture meant increasing taxes, and allocating the worst tracts of lands for black
subsistence
prosperity:
“A 10
substantial
amount
of productive
investment
was noneinthe
less carried
by the
It also meant
no incentives
to introduce
innovations
property
rightsout
institutions.
Reserves.
“A substantial amount of productive investment was none the less carried out by the
African
during
first twoinvestment
decades of the
century.
Africans
“A
substantial
amount
of the
productive
was
none
the
lessofcarried
out bought
by the
Finally,
anpeasantry
interesting
piece
of
evidence
highlighting
thepresent
importance
the
theoretical
mechaAfrican peasantry during the first two decades of the present century. Africans bought
wagons
and
carts
for
the
transport
to
the
towns
and
mining
centres,
some
invested
peasantry
theearly
first years
two decades
of settlement,
the present there
century.
bought
nisms African
is the fact
that, induring
the very
of white
is a Africans
clear record
of native
wagons and carts for the transport to the towns and mining centres, some invested
in corn and
crushers
boreholes,
far mining
the most
prominent
of
wagons
cartsand
for in
thewater
transport
to the(...)
townsbyand
centres,
some forms
invested
prosperity:
in corn crushers and in water boreholes, (...) by far the most prominent forms of
productive
investment
were
cattle
and ploughs.
In the
1905-21
the number
in
corn crushers
and in
water
boreholes,
(...) by
far period
the most
prominent
forms of
productive
investment
were
cattle andinvestment
ploughs. In
the
period
1905-21
the out
number
of
“A
substantial
amount
of
productive
was
none
the
less
carried
by the
African-owned
cattle increased
fromand
114,560
to 854,000
(...)1905-21
the number
of ploughs
productive
investment
were cattle
ploughs.
In thehead
period
the number
of
African-owned
cattle
increased
fromtwo
114,560
to 854,000
head (...)
the number
of ploughs
African
during
thefrom
first
of16,900
the present
century.
Africans
bought
in use bypeasantry
Africans
increasing
440114,560
indecades
1905toto854,000
in 1921”
1970,
214).
African-owned
cattle
increased
from
head
(...)(Arrighi,
the number
of p.
ploughs
in
use
by
Africans
increasing
from
440
in
1905
to
16,900
in
1921”
(Arrighi,
1970,
p.
214).
wagons and carts for the transport to the towns and mining centres, some invested
in use by Africans increasing from 440 in 1905 to 16,900 in 1921” (Arrighi, 1970, p. 214).
Palmer
p. 72) concurs,
notingboreholes,
an early Shona
living within
to
in (1977b,
corn crushers
and in water
(...) prosperity.
by far the Peasants,
most prominent
formsaccess
of
Palmer (1977b, p. 72) concurs, noting an early Shona prosperity. Peasants, living within access to
the main
markets
and
railroad
andan
facing
growing
demand
from
mines,
took
Palmer
(1977b,
p.investment
72) the
concurs,
noting
early
Shona prosperity.
Peasants,
living
within access
to
productive
were
cattle
and
ploughs.
In the period
1905-21
theadvantage
number
ofof new
the main markets and the railroad and facing growing demand from mines, took advantage of new
market
opportunities
and
newand
crops.
the
main
markets and
the grew
railroad
facing
growing
demand
from
took advantage
African-owned
cattle
increased
from
114,560
to 854,000
head
(...)mines,
the number
of ploughsof new
market opportunities and grew new crops.
The
reason
why this
fits
the new
theory
is
that,
during
the early
years,(Arrighi,
direct involvement
of whites
market
and
grew
crops.
in opportunities
use by Africans
increasing
from
440
in 1905
to 16,900
in 1921”
1970, p. 214).
The reason why this fits the theory is that, during the early years, direct involvement of whites
in agricultural
was
Hence,
for factors
production
such as
The reason production
why this fits
thelimited.
theory is
that, competition
during the early
years, of
direct
involvement
of labour
whites
in agricultural
production
was limited.
Hence,
competition
for factors
of production
such as
labour
Palmer
(1977b,
p.
72)
concurs,
noting
an
early
Shona
prosperity.
Peasants,
living
within
access
to
(the
FPM incentive)
was not
fierce asHence,
it would
become soon
afterwards.
Indeed, the
land
in
agricultural
production
wasaslimited.
competition
for factors
of production
suchinitial
as labour
(the
FPM
incentive)
was
not
as
fierce
as
it
would
become
soon
afterwards.
Indeed,
the
initial
land
the
main markets
andfor
the railroad and
facing growing
demand
mines, took
advantage
of new
grabbing
mostly
landowners,
and from
speculators
who were
actively
(the FPMwas
incentive)
was companies,
not as fierceabsentee
as it would
become soon
afterwards.
Indeed,
thenot
initial
land
grabbing
was
mostly
for
companies,
absentee
landowners,
and
speculators
who
were
not
actively
market
opportunities
andPalmer
grew new
crops.p. 33) and Mosley (1983, p. 20)). Hence, these early
involved
in
farming
(see
(1977b,
grabbing was mostly for companies, absentee landowners, and speculators who were not actively
involved
in farming
(seefits
Palmer
(1977b,
p. 33)
and the
Mosley
20)).
Hence, these
early
The
reason
why this
the theory
is that,
during
early(1983,
years, p.
direct
involvement
of whites
11
years
may
thought
of as
mirroring
the
equilibrium
Proposition
a RE these
solution.
involved
inbefarming
(see
Palmer
(1977b,
p.
33) and of
Mosley
(1983, 2p.describing
20)). Hence,
early
11
years
may be thought
of aswas
mirroring
the
equilibrium
of Proposition
2ofdescribing
a RE
in
agricultural
production
limited.
Hence,
competition
for factors
production
suchsolution.
ashad
labour
11
Without
directofinvolvement
in the
agricultural
production,
politically
powerfulagroups
few
years maystrong,
be thought
as mirroring
equilibrium
of Proposition
2 describing
RE solution.
Without
strong,
direct
involvement
in as
agricultural
production,
politically
powerful
groups
hadland
few
(the
FPM
incentive)
was
not
as
fierce
it
would
become
soon
afterwards.
Indeed,
the
initial
reasons
resentdirect
this early
prosperity.
Withouttostrong,
involvement
in agricultural production, politically powerful groups had few
reasons
to
resent
this
early
prosperity.absentee landowners, and speculators who were not actively
grabbing was mostly for companies,
reasons to resent this early prosperity.
involved in farming (see Palmer (1977b, p. 33) and Mosley (1983, p. 20)). Hence, these early
7 Final remarks
yearsFinal
may be remarks
thought of as mirroring the equilibrium of Proposition 2 describing a RE solution.11
7
7
Final
remarks
Without strong, direct involvement in agricultural production, politically powerful groups had few
This paper suggests a political economy explanation for the persistence of poor property rights
This
paper
suggests
political
economy explanation for the persistence of poor property rights
reasons
to resent
thisaearly
over land.
ruralprosperity.
sector
in developing
countries
a dual structure
politically
This
paper Often,
suggeststhe
a political
economy
explanation
for thehas
persistence
of poor with
property
rights
over land. Often, the rural sector in developing countries has a dual structure with politically
10
over
the rural
sector in referring
developing
countries
has a“defended
dual structure
with
Inland.
1914, Often,
a Chief Native
Commissioner,
to Reserves
proposed
their extent
on politically
the ground
10
In 1914, a Chief Native Commissioner, referring to Reserves proposed “defended their extent on the ground
p. 72). Likewise, the Land Settlement Department Director, F.W. Inskipp said: “As the area in question, which is
that
much
of
the land
selected
‘interspersed
with
granite
and
was
otherwise
unfit
cultivation’”
(Floyd,
1959,
p.
72).
Likewise,
the
Land
Settlement
Department
Director,
F.W.
Inskipp
said:
“As
the
area in
question,
is
In
this
context,
rural
elites
maintain
low
productivity
in the
traditional
sector
to which
obtain
practically
a conglomeration
of was
kopjes
with
veryagricultural
small
cultivable
valleys
in between,
isfor
infested
with
baboons
and
p.
72).
Likewise,
the
Settlement
Department
Director,
F.W.
said:
“Asisthe
in
question,
which
practically
a conglomeration
of kopjes
with
small
cultivable
valleys
inpersistence
between,
infested
with
baboons
and is
This
paper
suggests
a animals,
political
economy
explanation
for
of area
poor
property
rights
only
transversable
by Land
pack
I see
novery
objection
[to
making
itInskipp
athe
native
reserve]”
(Palmer,
1977b,
p. 104).
cheap
peasant
labour.
However,
this
objective
runs
into
trouble
when peasants
enjoy
alternative
11 transversable
practically
aasconglomeration
of kopjes
with
very
smallonly
cultivable
in between,
is (Palmer,
infestedwork
with
baboons
and is
only
byinpack
animals,
I see
objection
[to
making
itincentives
a native
reserve]”
1977b,
p.
104).
Recall
noted
footnote
6 that
theno
rural
elite
has
REvalleys
if only
peasants
the
land.
over
land.
Often,
the
rural
sector
in
developing
countries
has
a
dual
structure
with
politically
11 transversable
only
by
pack
animals,
I
see
no
objection
[to
making
it
a
native
reserve]”
(Palmer,
1977b,
p.
104).
Recall as noted
in footnotein
6 that
the rural
elite
only has
RE incentives
if only
work of
thenew
land.outside
employment
opportunities
the urban
(or
other)
sector.
In general,
thepeasants
emergence
11
10 Recall as noted in footnote 6 that the rural elite only has RE incentives if only peasants work the land.
In
1914,
a
Chief
Native
Commissioner,
referring
to
Reserves
proposed
“defended
their
extent
on
the ground
options for peasants limits the elite’s ability to manipulate
prices. Distorting the traditional
28 and wasfactor
that much of the land selected was ‘interspersed with granite
otherwise unfit for cultivation’” (Floyd, 1959,
28
economy
fails totheincrease
elites’ profits,
but Director,
increases
outmigration.
Thistheis area
trueinfor
a number
p. 72). Likewise,
Land Settlement
Department
Inskipp said: “As
question,
whichof
is
28 F.W.
practically
a
conglomeration
of
kopjes
with
very
small
cultivable
valleys
in
between,
is
infested
with
baboons
and
is
potential distortions on the subsistence sector, which I have succinctly captured in the theoretical
only transversable by pack animals, I see no objection [to making it a native reserve]” (Palmer, 1977b, p. 104).
11
model
with
on subsistence
propertyif rights
in thework
subsistence
Recall
as taxation
noted in footnote
6 that the income.
rural elite But
only limited
has RE incentives
only peasants
the land. sector
that
of theremarks
land selected was ‘interspersed with granite and was otherwise unfit for cultivation’” (Floyd, 1959,
7 10 much
Final
powerful
producers
or elites
alongside
traditional
peasants
with
little
voiceforin
theextent
political
process.
1914,
a Chief
Commissioner,
referring
to Reserves
proposed
“defended
their
on(Floyd,
the
ground
that In
much
of the
land Native
selected
was
‘interspersed
with granite
and was
otherwise
unfit
cultivation’”
1959,
constitute a distinct distortion. Like other distortions they reduce peasants’ income in subsistence
plots, but achieve something more: they force 28
peasants to remain in the agricultural sector to
protect their property.
30
Thus, rural elites have little incentive to promote a transition to institutions of private property
powerful producers or elites alongside traditional peasants with little voice in the political process.
powerful producers or elites alongside traditional peasants with little voice in the political process.
In this context,
ruralorelites
low
agricultural
productivity
in the
traditional
sector toprocess.
obtain
powerful
producers
elitesmaintain
alongside
traditional
peasants
with little
voice
in the political
In this context, rural elites maintain low agricultural productivity in the traditional sector to obtain
cheap
However,
thislow
objective
runs productivity
into trouble in
when
peasants enjoy
In this peasant
context,labour.
rural elites
maintain
agricultural
the traditional
sectoralternative
to obtain
cheap peasant labour. However, this objective runs into trouble when peasants enjoy alternative
employment
opportunities
in
the
urban
(or
other)
sector.
In
general,
the
emergence
of
new
outside
cheap peasant labour. However, this objective runs into trouble when peasants enjoy alternative
employment opportunities in the urban (or other) sector. In general, the emergence of new outside
options
for peasants
limits in
thethe
elite’s
ability
to manipulate
prices.
traditional
employment
opportunities
urban
(or other)
sector. Infactor
general,
the Distorting
emergence the
of new
outside
options for peasants limits the elite’s ability to manipulate factor prices. Distorting the traditional
economy
fails
to
increase
elites’
profits,
but
increases
outmigration.
This
is
true
for
a
number
of
options for peasants limits the elite’s ability to manipulate factor prices. Distorting the traditional
economy fails to increase elites’ profits, but increases outmigration. This is true for a number of
potential fails
distortions
on the
subsistence
which Ioutmigration.
have succinctlyThis
captured
thea theoretical
economy
to increase
elites’
profits, sector,
but increases
is trueinfor
number of
potential distortions on the subsistence sector, which I have succinctly captured in the theoretical
model with
taxation on
on the
subsistence
income.
But
limited
property
rights
in the subsistence
sector
potential
distortions
subsistence
sector,
which
I have
succinctly
captured
in the theoretical
model with taxation on subsistence income. But limited property rights in the subsistence sector
constitute
distinct distortion.
Like income.
other distortions
theyproperty
reduce peasants’
income
in subsistence
model
witha taxation
on subsistence
But limited
rights in the
subsistence
sector
constitute a distinct distortion. Like other distortions they reduce peasants’ income in subsistence
plots, but aachieve
they distortions
force peasants
remain
in the agricultural
sector to
constitute
distinctsomething
distortion.more:
Like other
theytoreduce
peasants’
income in subsistence
plots, but achieve something more: they force peasants to remain in the agricultural sector to
protectbut
their
property.
plots,
achieve
something more: they force peasants to remain in the agricultural sector to
protect their property.
Thus,
rural
elites have little incentive to promote a transition to institutions of private property
protect
their
property.
Thus, rural elites have little incentive to promote a transition to institutions of private property
in the
subsistence
economy.
This
suggests
specific amechanism
the endogenous
persistence
of
Thus,
rural elites
have little
incentive
toapromote
transition for
to institutions
of private
property
in the subsistence economy. This suggests a specific mechanism for the endogenous persistence of
badthe
rural
institutions
as development
unfolds.
Whilemechanism
other theories
of dualism
predict
an erosion
in
subsistence
economy.
This suggests
a specific
for the
endogenous
persistence
of
bad rural institutions as development unfolds. While other theories of dualism predict an erosion
of
the
traditional
economy
with
development,
in
this
theory
it
is
precisely
the
rise
of
an
alternative
bad rural institutions as development unfolds. While other theories of dualism predict an erosion
of the traditional economy with development, in this theory it is precisely the rise of an alternative
modern
or urban economy
sector which
rural elite’s
attention
from taxation
to avoid
migration.
of
the traditional
withshifts
development,
in this
theoryaway
it is precisely
the rise
of an alternative
modern or urban sector which shifts rural elite’s attention away from taxation to avoid migration.
As a result,
directsector
interests
of shifts
rural elites
in the attention
productivity
of from
the subsistence
disappear,
modern
or urban
which
rural elite’s
away
taxation to sector
avoid migration.
As a result, direct interests of rural elites in the productivity of the subsistence sector disappear,
together
withdirect
incentives
to promote
innovations
property rights
As
a result,
interests
of ruralefficiency-enhancing
elites in the productivity
of theinsubsistence
sectorinstitutions.
disappear,
together with incentives to promote efficiency-enhancing innovations in property rights institutions.
A noteworthy
aspecttoofpromote
the analysis
is that poor property
rights
are preferred
precisely
together
with incentives
efficiency-enhancing
innovations
in property
rights for
institutions.
A noteworthy aspect of the analysis is that poor property rights are preferred for precisely
the A
same
reason they
hurtofoverall
economic
development:
they simultaneously
reduceforthe
supply
noteworthy
aspect
the analysis
is that
poor property
rights are preferred
precisely
the same reason they hurt overall economic development: they simultaneously reduce the supply
of
to industry
to land) and
the surplusthey
of food
in society (reduce
thelabour
same reason
they (tie
hurtpeasants
overall economic
development:
simultaneously
reduce subsistence
the supply
of labour to industry (tie peasants to land) and the surplus of food in society (reduce subsistence
sector
productivity).
In
this
sense,
this
theory
provides
a
link
between
political
institutions
that give
of labour to industry (tie peasants to land) and the surplus of food in society (reduce subsistence
sector productivity). In this sense, this theory provides a link between political institutions that give
disproportionate
power
landowners
and
barriers
to the
structural
transformations
required
sector productivity).
In to
thislarge
sense,
this theory
provides
a link
between
political
institutions that
give
disproportionate power to large landowners and barriers to the structural transformations required
for
development.
Other
theories
share
this
spirit,
but
emphasize
the
interests
of
the
landed
elite
disproportionate power to large landowners and barriers to the structural transformations required
for development. Other theories share this spirit, but emphasize the interests of the landed elite
to
direct barriers
industrialization
under-invest
in necessary
public ofgoods
in order
to
for raise
development.
Othertotheories
share this or
spirit,
but emphasize
the interests
the landed
elite
to raise direct barriers to industrialization or under-invest in necessary public goods in order to
protect
rentsbarriers
(see, fortoexample,
Adamopoulos
(2008) andinGalor
et al. (2009)).
to
raise its
direct
industrialization
or under-invest
necessary
public goods in order to
protect its rents (see, for example, Adamopoulos (2008) and Galor et al. (2009)).
protect its rents (see, for example, Adamopoulos (2008) and Galor et al. (2009)).
29
29
29
31
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33
35
A
A
A
A.1
A
A.1
Appendix: Proofs
Appendix: Proofs
Appendix:
Proofs
Characterization
of w̄ (τS , µ)
Appendix:
Proofs
Characterization
of w̄ (τ , µ)
S
A.1
Characterization
of w̄ of
(τSthe
, µ) rural areas at m = 0, w̄ (τS , µ), is decreasing in τS is
That the
relative attractiveness
A.1
Characterization
of
w̄
(τ
, µ) simple
That
the
relative
attractiveness
of
areas
at m = 0, To
w̄ (τcharacterize
in τS of
is
Sthe
S , µ), is decreasing
straightforward from inspection of (10) orrural
differentiation.
the behaviour
That the relative
attractiveness
of(10)
theorrural
areas
at m = 0, To
w̄ (τcharacterize
in τS of
is
S , µ), is decreasing
straightforward
from
inspection
ofas
simple
differentiation.
the behaviour
w̄
(τ
,
µ)
as
µ
changes,
rewrite
it
follows:
That
the
relative
attractiveness
of
the
rural
areas
at
m
=
0,
w̄
(τ
,
µ),
is
decreasing
in
τ
is
S
S
S
straightforward
from inspection
or simple differentiation. To characterize the behaviour of
w̄ (τS , µ) as µ changes,
rewrite itofas(10)
follows:
straightforward
from
inspection
of
(10)
or
simple
differentiation.
To
characterize
the
behaviour
of
w̄ (τS , µ) as µ ∂changes,
w̄ (τS , µ)rewrite it as follows:
w̄ (τS , µ) as µ ∂changes,
follows:
= Bit∗ as
k (µ)
∗ l (µ) ,
w̄ (τS , µ)rewrite
∂µS , µ) = B ∗ k (µ) ∗ l (µ) ,
∂ w̄ (τ
∂µ
=
∂ w̄ (τ
where
: B ∗ k (µ) ∗ l (µ) ,
S , µ)
∂µ
∗
=
k 1−α
(µ) ∗ l (µ) ,
where
: B
1
∂µ
1 1−α
where
:
B ≡ 1
> 0,
t [(1 − τS )] 1−α
1
1−α
where
:
1−α
L
B ≡
> 0,
1
1 1−α t [(1 − τS )] 1−α
L
α τ )]
B ≡
t [(1 1−α
−
> 0,
1
S
1
µ−
α τ )] 1−α > 0,
B ≡
≡ L
t [(1
S
α ,
1−α
k (µ)
µ α1
L
k (µ) ≡ t [(1 − τS ) µ
1−α
µ]1−α
+ T − tα ,
α1
k (µ) ≡ t [(1 − τS ) µ
1−α
µ]1−α
+ T − tα ,
1
1
,
k (µ) ≡ t [(1 − τS ) µ] 1−α
1
1−
α
1 −+
µT −t α
t [(1 − τS ) µ] 1−α
1
1−α + T − t
)
µ]
t
[(1
−
τ
S
l (µ) ≡ 1 − 1 − α µ + 1 − µ − (1 − µ)
.
t [(1 − τS )1µ] 1−α
1
α αµ + 1 −
α µ − (1 − µ) t [(1 t−[(1
1−α
l (µ) ≡ 1 − 1 −
.
τS−
) µ]
)1µ]+
τS1−α
1T − t
α αµ + 1 −
α µ − (1 − µ) t [(1 t−[(1
1−α
l (µ) ≡ 1 − 1 −
1−α
τS−
) µ]
T − t.
)
τ
1µ] +
S
l (µ) ≡ 1 − α µ + α − (1 − µ) t [(1 − τS )µ] 1−α
+ T− t .
1
:
(1)
k
(µ)
>
0
for
all
µ
∈
µ,
1
,
(2)
l µ
1/α > 0,
Now note the following properties12
α
α
1−α
tµ[(1
−µ,
τS1)µ]
+
T−≈
t 11 +
Now note the
following properties12
:
(1)
k
(µ)
>
0
for
all
∈
,
(2)
l
µ
≈
+
1/α > 0,
2α−1
(3)
≶ 0 if properties
α ≶ 1/2,12
and
l (µ)> <
0. all
If αµ >
that
1/α >
0,
Nowl (1)
note=the
: (1)(4)k (µ)
0 for
∈ 1/2,
µ, 1these
, (2) properties
l µ ≈ 1 +imply
αfollowing
2α−1
(3)
l
(1)
=
≶
0
if
α
≶
1/2,
and
(4)
l
(µ)
<
0.
If
α
>
1/2,
these
properties
imply
that
∗
12 :and
α
=
1.
If
instead
α
<
1/2,
from
properties
1
and
,
µ)
/∂µ
>
0
for
all
µ
∈
µ,
1
thus
µ
∂
w̄
(τ
(1)
k
(µ)
>
0
for
all
µ
∈
µ,
1
,
(2)
l
µ
≈
1
+
1/α
>
0,
Now
note
the
following
properties
2α−1
S
(3)
l (1)
= α> 0≶for
0 if
l (µ)
α > 1/2,
properties
imply1 that
<these
from
properties
and
allαµ ≶
∈ 1/2,
µ, 1and
and(4)
thus
µ∗∗ =<1.0. IfIfinstead
∂ w̄ (τ
2α−1
(µ)
S , µ)=/∂µ
∂ w̄1/2,
τS ,µ
(α
) 1/2,
(3)
≶
0
if
α
≶
1/2,
and
(4)
l
<
0.
If
α
>
these
properties
imply1 that
,
µ)
/∂µ
>
0
for
all
µ
∈
µ,
1
and
thus
µ
=
1.
If
instead
α
<
1/2,
from
properties
and
α
,
1)
/∂µ
<
0.
Properties
1
and
2
imply
in
turn
that
>
0.
These
observations,
3∂ w̄∂ (τ
w̄l (1)
(τ
S S
∂
w̄
τ
,µ
(
)
S
∂µ
/∂µ
0 for
µ ∈ µ, 11 and
and 2thus
µ∗ =
instead
α
<)1/2,
properties
1 ∗and
from
, 1)
/∂µ> <
0. all
Properties
imply
in 1.
turnIf that
> 0.
These
observations,
3∂ w̄∂ (τ
w̄ S(τ, Sµ)
∂ w̄(∂µ
τ∗S ,µ
∂ w̄(τS ,µ
)
∈)µ,
that
properties
1 and 4, imply
there in
exists
unique
such
1) /∂µ
< 0. Properties
1 andthat
2 imply
turna that
> 10.
These
observations,
3together
∂ w̄ (τS ,with
∗ =
∂ w̄(τ∂µ
∂ w̄µ
τ∗S ,µ
∂µ
(
S ,µ )
∈∗ isµ,
that
together
properties
1 andmaximizes
4, imply
there
exists
unique
such
∗ )<=0.
∗) > µ
∗ =
Properties
1 andthat
turnak that
> 10.
These
3B
∂∗w̄k (τ
)1)
∗ l/∂µ
(µ
0 which
w̄2 (τimply
, µ). in
Since
0,
lobservations,
(µ∂ ∗∗w̄(τ
) ∂µ
=
(µS∗∗,with
S ,µ0,) or
∂µ
∗µ
Sthere
∈∗ isµ,defined
1 such by
that
=
together
with
properties
1 andmaximizes
4, imply that
exists
ak (µ
unique
∗ ) = 0 which
∗) > µ
∂µ
)
∗
l
(µ
w̄
(τ
,
µ).
Since
(µ
0,
µ
defined
by
l
(µ
)
=
0,
B
∗
k
(µ
w̄(τS ,µ∗ ) or
∗ ∈∗ µ, 1 such that ∂ ∗
Sthere exists a unique
=
0)
by:
(also
using
τ
∗
∗
∗
=
together
with
properties
1
and
4,
imply
that
µ
S
0 which maximizes w̄ (τS , µ). Since k (µ ) > 0, µ is defined by l (µ ) ∂µ
= 0, or
B ∗ k using
(µ ) ∗τl (µ= )0)=by:
(also
∗ ) ∗ lS(µ∗ ) = 0 which maximizes w̄ (τ , µ). Since k (µ∗ ) > 0, µ∗ is defined by l (µ∗ ) = 0, or
B
∗
k
(µ
S
(also using τS = 0) by:
1
1 − α ∗ 1 − µ∗∗
t [µ∗∗ ] 1−α
1
(also using τS = 0) by:
∗
1 = 1 − α µ∗ − 1 − µ + (1 − µ∗ )
.
t [µ1 ∗ ] 1−α
1
α α µ − 1 −αµ∗ + (1 − µ ) t [µ∗t] 1−α
1−α
1= 1−
.
+
T
−
t
]
[µ
1
1
α α µ∗ − 1 −αµ∗ + (1 − µ∗ ) t [µ∗t] 1−α
∗ ]+
1= 1−
.
1−α
T
−
t
[µ
1
1 = α µ∗ − α + (1 − µ∗ ) t [µ∗ ] 1−α
+ T − t.
1
α problem t [µ∗ ] 1−α + T − t
A.2 Characterization ofα the FPM
A.2 Characterization of the FPM problem
A.2
Characterization
of no
themigration
FPM problem
Equilibrium
policies in the
regime
A.2 Characterization
of no
themigration
FPM problem
Equilibrium
policies in the
regime
L
Equilibrium
policies
in the
no migrationincreasing
regime
which
is monotonically
The elite maximize
L
T̃
Equilibrium
policies
in the
no migrationincreasing
regime
which
is
monotonically
The elite maximize
The elite maximize T̃T̃L which is monotonically increasing
The elite maximize T̃L which is monotonically increasing
in
in
in
in
τS
τS
τS
τS
and
and
and
and
monotonically
monotonically
monotonically
monotonically
decreasing
decreasing
decreasing
decreasing
in
in
in
in
µ.
µ.
µ.
µ.
To see property
4,
write l (µ)
=
(α − 2) /α + a (µ) ∗ b (µ) with a (µ)
≡
1 property
1
To see1−α
4,
write l (µ)
=
(α − 2) /α + a (µ) ∗ b (µ) with a (µ)
≡
12− τS ) µ] 1 / t [(1 − τS ) µ] 1−α
t [(1
+
T
−
t
and
b
(µ)
≡
1
−
(1
−
µ)
(1
−
a
(µ))
/
(µ
(1
−
α)).
Note
the
1
To see1−α property
4, 1−α
write l (µ)
=
(α − 2) /α + a (µ) ∗ b (µ) with a (µ)
≡
t [(1
and =
b (µ) (α
≡ −1 2)
− /α
(1 −+µ) (1
− a (µ))
/(µ)
(µ (1 with
− α)). a Note
the
12− τS ) µ] 1 / t [(1 − τS ) µ] 1 + T − t
To see
property
4,
write
l
(µ)
a
(µ)
∗
b
(µ)
≡
following:
(α
−
2)
/α
is
negative
and
independent
of
µ;
a
(µ)
is
increasing
in
µ
and
positive
for
all
µ;
b
(µ)
1−α
1−α
t [(1 − τS ) µ] 1 / t [(1 − τS ) µ] 1 + T − t and b (µ) ≡ 1 − (1 − µ) (1 − a (µ)) / (µ (1 − α)). Note the
following:
(α
−
2)
/α
is
negative
and
independent
of
µ;
a
(µ)
is
increasing
in
µ
and
positive
for
all
µ;
b
(µ)
1−α
1−α
approaches
minus
infinity
at
µ
=
0,
equals
1
at
µ
=
1,
and
is
also
increasing
in
µ.
Thus
a
sufficient
condition
t [(1 −
τS ) µ]
/ t [(1 − τS ) µ]
+T −t and b (µ) ≡ 1 − (1 − µ) (1 − a (µ)) / (µ (1 − α)). Note the
following:
− negative
2) /α
is negative
a (µ)
is increasing
µµ.and
for
allcondition
µ; b (µ)
approaches
minus
infinity
at all
µ =µand
0,∈equals
µ =of
is also
increasing
inBut
Thus
a sufficient
for
l (µ) to(α
be
for
µ, 1 1isatthat
it1, µ;
isand
negative
at µ = 1. in
thispositive
always
holds
because
independent
following:
(α
−
2)
/α
is
negative
and
independent
of
µ;
a (µ)
is increasing
in
µµ.and
positive
for
allcondition
µ; b (µ)
approaches
minus
infinity
at
µ
=
0,
equals
1
at
µ
=
1,
and
is
also
increasing
in
Thus
a
sufficient
for
l
(µ)
to
be
negative
for
all
µ
∈
µ,
1
is
that
it
is
negative
at
µ
=
1.
But
this
always
holds
because
(2 − α) /α > 1 > a (1) .
approaches
minus
infinity
at
µ
=
0,
equals
1
at
µ
=
1,
and
is
also
increasing
in
µ.
Thus
a
sufficient
condition
for
l
(µ)
to
be
negative
for
all
µ
∈
µ,
1
is
that
it
is
negative
at
µ
=
1.
But
this
always
holds
because
(2 − α) /α > 1 > a (1) .
for−l α)
(µ)/αto>be
(2
1 >negative
a (1) . for all µ ∈ µ, 1 is that it is negative at µ = 1. But this always holds because
(2 − α) /α > 1 > a (1) .
34
12
12
34
34
34
36
Equilibrium policies in the unavoidable migration regime
Equilibrium policies in the unavoidable migration regime
Equilibrium
policies
in the unavoidable
migration
regime
In the main text
it was observed
that the optimal
property tax
rate for the elite is τ = 0. Taking this
In the main text
it was observed
that the optimal
property tax
rate for the eliteI is τ = 0. Taking this
Equilibrium
policies
in
the
unavoidable
migration
regime
/T̃ with
µ
as
given,
one
can
take
a
monotone
transformation
and
note
that
maximizing
LIRis
In
the main
wasaobserved
that
the
rate
for the elite
= 0. respect
Taking to
this
notetax
optimal property
respect
to
µ
as given,
onetext
canittake
monotone
transformation
and
that
maximizing
LIR /T̃τ with
1
1−α
tµproperty
1
/
T̃
with
respect
to
µ
as
given,
onetext
canmaximizing
monotone
and
note
that
maximizing
L
In
the main
ittake
wasaobserved
the
optimal
tax
rate
for
the
elite
is
τ
=
0.
Taking
this
R
.
The
first
order
condition
can
be
written
as,
is equivalent
to
z (µ)that
=transformation
log
(1
−
µ)
1−α
tµ T̃1 I
.
The
first
order
condition
can
be
written
as,
is
equivalent
to
maximizing
z
(µ)
=
log
(1
−
µ)
1−α note that maximizing L /T̃ with respect to µ
as
given, one to
canmaximizing
take a monotone
R
is
T̃(µ)
(0) = ∞,
. The
first order condition
can
be zwritten
as,
is
z (µ)
=transformation
log=0.
(1 −
µ) tµzand
1
z equivalent
(µ) = −1/ (1
− µ) + γE / [(1
− α)
µ]
Since
monotonically
decreasing
in µ,
T̃
(0) = ∞,
1−α
tµ
zis equivalent
(µ) = −1/ (1
−
µ)
+
γ
/
[(1
−
α)
µ]
=
0.
Since
z
(µ)
is
monotonically
decreasing
in
µ,
z
E
F P M = can
I /
F Pµ)
M
. The
order
condition
be
as,
to
maximizing
z (µ)
=
log= 0.
(1µ−
µ, 1is
(0) L
suchfirst
that
z µ
= (1
−∞,
unique
T̃
and
Hence,
z (µ)zz =(1)
−1/
−
µ)there
+ γE /exists
[(1
−a
α)
µ]
Since
z T̃(µ)
monotonically
decreasing
in µ,
zwritten
=R
F P M = 0.
I ∞,
FPM ∈
(1)
=
−∞,
there
exists
a
unique
µ
∈
µ,
1
such
that
z
/
T̃
and
µ
0.
Hence,
L
R
F
P
M
F
P
M
I
F
P
M
.
Straightforward
differentiation
then
yields
the
following
achieves
a
unique
maximum
at
µ
= (1
−∞,
there
exists
aα)unique
µSince ∈
µ, 1is monotonically
such that z µdecreasing
/T̃
and
= 0.
Hence,
L=R∞,
zachieves
(µ)z =(1)
−1/
−
µ)
+
γ
/
[(1
−
µ]
=
0.
z
(µ)
in
µ,
z
(0)
F
P
M
E
a unique maximum at
µF P M . Straightforward
differentiation
Fthen
yields the following
FPM
PM
F P M/∂t
PM
I /T̃
F P∂µ
M F∈
/∂T .>µStraightforward
0,
/∂α
0, ∂µ
0. Moreover,
comparative
static
results:
∂µat
differentiation
then
yields
the note
following
−∞, there
exists
1 >
such
that
z /∂t
and
z (1)a =unique
µ<
= 0. Hence,
Lfrom
achieves
maximum
µunique
F P Mµ,
FPM
R
/∂T
>
0,
∂µ
/∂α
>
0,
∂µ
<
0.
Moreover,
note
from
comparative
static
results:
∂µFF aPP M
MF/∂T
F P(2
M /∂α
F P Msince
P Mthat
inspectiona of
the first
order∂µ
condition
z∂µ
(1/
− α))>differentiation
<0, 0,
and
z 0.
(µ)
is decreasing
in
µ,
>
0,
∂µ
/∂t
<
Moreover,
note
from
comparative
static
results:
.
Straightforward
then
yields
the
following
achieves
unique
maximum
at
µ
inspection
the first order condition that z (1/ (2 − α)) < 0, and since z (µ) is decreasing in µ,
F P M < 1/of
F
P
M
F
P
M
F
P
M
(2
−
α).
Also
from
the
first
order
condition,
as
T
→
∞
or
t
→
0,
γ
approaches
1
and
µ
Eis decreasing
inspection
the
first
order
condition
(1/
(2 /∂α
− α))>
since
(µ)
µ,
F P M < 1/of
>
0,z∂µ
∂µ
/∂t
<z0,
0.
note in
from
comparative
results:
∂µ
(2static
−1α).
Also
from
the /∂T
firstthat
order
condition,
as<0,
T 0,
→and
∞ or
t→
γMoreover,
µ
E approaches 1 and
FPM →
F
P
M
.
thus
µ
1/of→
(2the
−
from
the firstthat
order
condition,
∞ or
t →z0,(µ)
γEisapproaches
µ
1α).
2−α
inspection
first
order
condition
z (1/
(2 − α))as<T 0,→and
since
decreasing1inand
µ,
. Also
thus
µF<P M
2−α
1
F P MµF<P M
.
thus
1/ →
(2 −
α).
Also
from
the
first
order
condition,
as
T
→
∞
or
t
→
0,
γ
approaches
1
and
µ
E
2−α
PM → 1 .
A.3 µFCharacterization
of
the
RE
problem
thus
2−α
A.3 Characterization
of the RE problem
A.3
Characterization
of no
themigration
RE problem
Equilibrium
policies in the
regime
Equilibrium
policies
in
the
no
migration
regime
A.3
Characterization
of
the
RE
problem
Equilibrium policies in the no migration regime
In the main text it was observed that in the no migration regime the optimal property rights level
In
the main text
it was observed
in the noregime
migration regime the optimal property rights level
Equilibrium
in
the nothat
for the
themain
elite text
inpolicies
the
RE observed
problem
is migration
µ in
= the
1. no
Taking
this asregime
given, taking
logsproperty
on the maximand,
In
it
was
that
migration
optimal
rights level
for the elite in the RE problem is µ = 1. Taking
this as given,the
taking
logs on the maximand,
) =
and
ignoring
constant
terms,
one
can
find
the
optimal
level
of
taxation
by
maximizing
z̃ (τSlevel
for the
in
the
REterms,
problem
iscan
µ in
=
1. the
Taking
this level
asregime
given,
taking
logsmaximizing
on the maximand,
In
main
it 1was
observed
the
no
migration
the
optimal
property
rights
the
elite text
α onethat
and
ignoring
constant
find
optimal
of taxation
by
z̃ (τS ) =
1−α
α
S ) 1REterms,
and
constant
find
optimal
of taxation
z̃ (τ ) =
for the
elite (1−τ
in
the
problem
iscan
µ =
1. the
Taking
thisislevel
as
taking by
logsmaximizing
on the maximand,
log
τignoring
The
first
order
condition
z̃ (τgiven,
α . one
S
S ) = 1/τS −αγE / ((1 − α) (1 − τSS)) =
(1−τS1) 1−α
1
1−α
log
τ
.
The
first
order
condition
is
z̃
(τ
)
=
1/τ
−αγ
/
((1
−
α)
(1
−
τ ))
=
t(1−τ
)
+(T
−t)
S
S
S
E
1
1−α terms, one can find the optimal level of taxation by maximizing z̃ (τ
S
(1−τ
) =
andτignoring
constant
S)
(τ ) = 1/τ −αγ / ((1 − α) (1 − τSS))
) 1−α
+(T
−t) α . The first order condition
(τ S
(0) =is∞,
log
z̃
=
S z̃t(1−τ
S
S
E
S
1monotonically
1
)
is
decreasing
in
µ,
z
and
z
(1)
=
−∞,
there
exists
a
unique
0. Since
(τS
(0) = ∞, and z (1) = −∞, there exists a unique
1−α
t(1−τ
)is
+(T −t)
(1−τ
) 1−α
S
S monotonically
)
decreasing
in
µ,
z
0.
Since
z̃
S
Laf f er such
log
τS 1] , denoted
. The
first
condition
is∞,
z̃ (τ
1/τ
α)that
(1 a−satisfies
τS )) =
S) =
S −αγ
1 τ
τ ∈Since
[0,
z̃ (τorder
) =in0.µ,
Hence,
there
exists
unique
τES/there
∈((1
(0,−1)
(τS S) )is1−α
monotonically
decreasing
z (0) =
and
z aa(1)
=
−∞,
exists
unique
0.
Laf−t)
f er such that
τ ∈ [0, 1]z̃,t(1−τ
denoted
τ+(T
that
z̃
(τ
)
=
0.
Hence,
there
exists
unique
τ
∈
(0,
1)
that
satisfies
S
13
.∞,
Inspection
of= this
or astraightthe
first
τ ∈Since
[0,
1]z̃order
, denoted
τ Laf f erand
suchmaximizes
that
z̃ (τ )tax
=in0.revenues
there
exists
unique
τScondition
∈ (0, 1)
that
satisfies
(τS ) condition
is monotonically
decreasing
µ,Hence,
z (0) 13
=
and
z a(1)
−∞,
there
exists
unique
0.
. Inspection
of this
condition
or straightthe
first
order
condition
and
maximizes
tax
revenues
Laf f er
13
Laf
f
er
/∂T
< 0,
forward
differentiation
then
yields
the
following
comparative
static
results:
∂τ
.
Inspection
of
this
condition
or
straightthe
first
order
condition
and
maximizes
tax
revenues
Laf
f
er
τforward
∈ [0,
1] differentiation
, denoted
τ
such
that
z̃
(τ
)
=
0.
Hence,
there
exists
a
unique
τ
∈
(0,
1)
that
satisfies
S ∂τ
/∂T < 0,
then
yields the following comparative static results:
Laf
f
er
Laf
f
er
Laf
f
er
13α
0, ∂τ Laf then
/∂tyields
> 0. Moreover,
τS >comparative
1−
asstatic
T →∞
or tcondition
→ 0, τS →
1straight− α.
∂τ Laf
< 0,
forward
differentiation
the following
results:
f er /∂α
. but
Inspection
this
or/∂T
the
first
order<
and
tax revenues
/∂α
< condition
0, ∂τ Laf ff er
/∂tmaximizes
> 0. Moreover,
τS > 1 − α
but
as T →of∞
or t →∂τ
0, τS →
1 − α.
∂τ Laf
f
er
er
Laf
f
er
/∂α
< 0, ∂τ then
/∂tyields
> 0. Moreover,
τS >comparative
1 − α but asstatic
T →∞
or t →∂τ
0, τS →/∂T
1 − α.
∂τ
< 0,
forward
differentiation
the following
results:
Laf
f
er
Laf
f
er
Equilibrium
policies
in
the
unavoidable
migration
regime
/∂α <policies
0, ∂τ in /∂t
0. Moreover, migration
τS > 1 − α but
as T → ∞ or t → 0, τS → 1 − α.
∂τ
Equilibrium
the>unavoidable
regime
Equilibrium
policies
in
the
unavoidable
migration
regime
Taking logs and ignoring constant terms, the maximization problem in this case is equivalent to
Taking
logs and
ignoring
terms, the migration
maximization
problem in this case is equivalent to
Equilibrium
policies
inconstant
the unavoidable
regime
maximizing
Taking
logs and ignoring constant terms, the maximization problem in this case is equivalent to
maximizing
problem in this case is equivalent
maximizing
Taking
logs and ignoring constant terms, the
1 to
maximization
1−α
1 )
µ]
1
1
−
α
t
[(1
−
τ
α
S
maximizing
z̄ (τS , µ) = log τS + 1 log µ + α log (1 − τS ) 1 + (1 − µ) 1 − α t [(1 − τS ) µ] 1−α
1 z̄ (τS , µ) = log τS + 1 −
α α t [(1 − τT̃S ) µ] 1−α 1 α log µ + 1 −
α α log (1 − τS ) 1 + (1 − µ) 1 −
1
T̃
z̄ (τS , µ) = log τS + 1 − α log µ + 1 − α log (1 − τS ) 1 + (1 − µ) α
1α
1−
αα
1−
1−
α α t [(1 − τT̃S ) µ] 1−α
z̄ (τS the
, µ) =
log τS + with respect
1 +, µ)
(1 −
log µ + µ, it log
(1 −that
τS ) z̄ (τ
Taking
derivative
clear
is µ)
increasing
in µ for each τS . To
1 − αrespect to
α
− αit is
Taking the derivative with
to1 µ,
is clear that z̄ (τSS , µ) is increasing
in µ T̃for each τS . To
see this,the
taking
the derivative
and simplifying:
Taking
derivative
with
respect
to
µ,
it
is
clear
that
z̄
(τ
,
µ)
is
increasing
in µ for each τS . To
S
see this, taking the derivative and simplifying:
see this,the
taking
the derivative
and simplifying:
Taking
derivative
with respect
to µ, it is clear that
z̄ (τS , µ) isincreasing in µ for each τS. To
1
1−α
1
1
αt
[(1
−
τ
)
µ]
1
−
µ
T
−
t
1 derivative
S
see this,
taking
the
and
simplifying:
αt [(1 − τS ) µ] 1−α
z̄2 (τS , µ) = 1 1 +
1
− (1 − α) + 1 − µ T − t 1
1−α
− (1 − α) + 1 −
z̄2 (τS , µ) = 1 −
µ µ T T̃− t 1 + αT̃ + (1 −αt
)tµ]
[(1
−
τα)
1 α µ
1−α
1
S
µ)
(1
−
[(1
−
τ
)
µ]
S
µ
1− τ ) µ] 1−α − (1 − α) +
T̃ z̄2 (τS , µ) = 1 − α µ + αT̃ + (1 − µ) (1 − α) t [(11−α
1
S
1 αT̃ + (1 −αt
[(1
−
τα)
1−
1α µ
1−
µ µ T T̃− t
S )tµ]
1−α
µ)
(1
−
[(1
−
τ
)
µ]
S
+
− (1 − α) +
z̄2 (τS , µ) =
1
µ
1 − α µ αT̃ + (1 − µ) (1 − α) t [(1 − τS ) µ] 1−α
T̃
13
13
Alternatrively, straightforward differentiation
Alternatrively,
straightforward
differentiation
this13solution
is indeed
a global maximum.
Alternatrively,
straightforward
differentiation
this solution
is indeed
a global maximum.
this13solution
is
indeed
a
global
maximum.
Alternatrively, straightforward differentiation
this solution is indeed a global maximum.
shows
shows
shows
shows
35
35
35
35
that
that
that
that
37
the
the
the
the
maximand
maximand
maximand
maximand
is
is
is
is
everywhere
everywhere
everywhere
everywhere
concave
concave
concave
concave
in τS ,
in τS ,
in τS ,
in τS ,
so
so
so
so
T −t > 1, and − (1 − α) + 1−µ
is decreasing in µ and it can be no smaller than
1−µ
T
−t
µ
T̃ decreasing in µ and it can be no smaller than
> 1, and − (1 − α) + 1−µ
µ TT̃−t is
is
decreasing
in µ andto
it show
can bethat
no smaller than
>
1,
and
−
(1
−
α)
+
to verify that the expression
is positive,
it is sufficient
µ TT̃−t
1−µ
to
verify
expression
it is sufficient
is decreasing
in µ andto
it show
can bethat
no smaller than
> 1,
and that
− (1the
− α)
+ µ T̃is positive,
to verify that the expression is positive,
it is sufficient to show that
1
to verify that the expression
it is sufficient
1−α
1
αt [(1 − τ )isµ]positive,
1 to show that
1
αt [(1 − τSS ) µ] 1−α
1 .
<
1
1−α
[(1
−
τα)
1 α.
< 1−
1
S )tµ]
1−α
1
αT̃ + (1 −αt
µ)
(1
−
[(1
−
τ
)
µ]
S
< 1−
1 α.
1
S )tµ]
αT̃ + (1 −αt
µ)[(1
(1 −
− τα)
[(11−α
− τS ) µ] 1−α
< 1 − α.
αT̃ + (1 − µ) (1 − α) t [(1 − τS ) µ] 1−α
1
1 − α that
After some algebra, it canαbe
shown
that
this
equivalent
to verifying
T̃ +
(1 − µ)
(1 −
α)ist [(1
− τS ) µ] 1−α
After some algebra, it can be shown that this is equivalent
to verifying that
After some algebra, it can be shown that this is equivalent to verifying that
α (Tto−verifying
t)
After some algebra, it can be shown that this is equivalent
that
α (T − t) 1 .
−1 + (µ + α) (1 − α) <
t) 1−α
−1 + (µ + α) (1 − α) < t [(1α−(Tτ −
1 .
) µ]
−1 + (µ + α) (1 − α) < t [(1α−(TτS−
t) 1−α
1 .
)
µ]
S
−1 + (µ + α) (1 − α) < t [(1 − τS ) µ] 1−α
1 .
1−α
But since since µ < 1 substituting (1 + α) for (µ + α)t [(1
in −
theτSleft
side of the inequality,
) µ] hand
But since since µ < 1 substituting (1 + α) for (µ + α) in the left hand side of the inequality,
But since since µ < 1 substituting (1 + α) for (µ + α) in the left hand side of the inequality,
(T the
− t)inequality,
But since since µ < 1 substituting (1 + α) for (µ + α) in the left
hand sideα of
α (T − t) 1 .
−1 + (α + µ) (1 − α) < −1 + (1 + α) (1 − α) = −α22 < 0 <
t) 1−α
−1 + (α + µ) (1 − α) < −1 + (1 + α) (1 − α) = −α2 < 0 < t [(1α−(Tτ −
1 .
) µ]
−1 + (α + µ) (1 − α) < −1 + (1 + α) (1 − α) = −α2 < 0 < t [(1α−(TτS−
t) 1−α
1 .
)
µ]
S
−1 + (α + µ) (1 − α) < −1 + (1 + α) (1 − α) = −α < 0 < t [(1 − τS ) µ] 1−α
1 .
asτSgiven,
Therefore z̄2 (τS , µ) > 0 and the preferred level of µ is 1. Taking tthis
) µ] 1−αone can find
[(1 −
Therefore z̄2 (τS , µ) > 0 and the preferred level of µ is 1. Taking this as given, one can find
α) (1
− τpreferred
solve
τS as
= 1given,
− α. This
indeed
z̄1 (τS , 1) =z̄1/τ
µ)α/>[(10 −and
the
level
of for
µ isthe
1. optimal
TakingτS,
this
one is
can
find
Therefore
S )] = 0 and
2 (τS ,−
α/>[(10 −and
α) (1
− τpreferred
solve
for
the
optimal
τS,
τS as
= 1given,
− α. This
is
indeed
z̄1 (τS , 1) =z̄1/τ
S )] = 0 and
(τSS ,−
µ)
the
level
of
µ
is
1.
Taking
this
one
can
find
Therefore
2since
(τ
,
1)
<
0.
z̄
(τS , 1) = 1/τ
−
α/
[(1
−
α)
(1
−
τ
)]
=
0
and
solve
for
the
optimal
τ
τ
=
1
−
α.
This
is
indeed
z̄a1maximum
11 S
S
S
S, S
(τ
,
1)
<
0.
a
maximum
since
z̄
11
S
(τS , 1) = 1/τ
[(1 − α) (1 − τS )] = 0 and solve for the optimal τS, τS = 1 − α. This is indeed
z̄a1maximum
S −z̄α/ (τ
since
11 S , 1) < 0.
a maximum since z̄11 (τS , 1) < 0.
Now note that µ11
Now note that µ1
Now
note
− (1 −
α). that
Thus,
µ
1
− (1 −
α). that
Thus,
Now
note
µ
− (1 − α). Thus,
− (1 − α). Thus,
A.4 Characterization of the Combined Problem
A.4 Characterization of the Combined Problem
A.4 Characterization of the Combined Problem
Equilibrium
policies in the
regime
A.4
Characterization
of no
themigration
Combined
Problem
Equilibrium
policies in the
no
migration
regime
1
α
Equilibrium policies
in the no
migration regime
F P M + π RE where, π F P M = k T̃ −α , π RE = ktµ 1−α
1 τ (1 − τ ) 1−α
α ,
= max
Rewrite
(12) aspolicies
max cE
Equilibrium
in
the πno
migration
regime
S
S
E
F
P
M
RE
F
P
M
−α
RE
1 τ (1 − τ ) 1−α
α ,
α max c
Rewrite (12)Las
= max π F P M + π RE where, π F P M =
kfT̃er−α , π RE = ktµ 1−α
S
S 1−α
Laf
E
1−α
α . max
and k = (12)
AE Lαas
Thatc the
larger πthan τ=
, follows
taking
derivative
Rewrite
= optimal
max π F PτM
+ π REbewhere,
, π RE =byktµ
(1 −
τS ) α ,
1 τSthe
S must
LafkfT̃er−α
E
F
P
M
α
and
k
=
A
.
That
the
optimal
τ
must
be
larger
than
τ
,
follows
by
taking
the
derivative
1−α τ (1 − τ ) 1−α ,
E /∂τ
RE /∂τ
= optimal
max
π τS ∂π
+FπP Mbe
where,
πthan
,noting
π
=by
ktµ
Rewrite
Lαas max
Lafk
fT̃er , follows
Sthe derivative
Sof the
respect
to cτthe
from
the analysis
of
andcE
= (12)
AE
. That
larger
τ=
taking
S , ∂c
S + ∂π
S , and
E
S must
Ek with
E /∂τS =
F P M /∂τ
RE /∂τ
Lαα
Laf
f
er
with
respect
to
τ
,
∂c
=
∂π
/∂τ
+
∂π
,
and
noting
from
the
of the
of
c
S
S
S
S
Laf
f eranalysis
and
k
=
A
.
That
the
optimal
τ
must
be
larger
than
τ
,
follows
by
taking
the
derivative
E
E
F
P
M
RE
E
S
=
τ
(and
positive
previous
cases
that
while
the
first
term
is
positive,
the
second
is
zero
for
τ
α
the
of the
of cE with respect to τS , ∂cE /∂τS = ∂π F P M /∂τS + ∂π RE /∂τS , and notingS fromLaf
f eranalysis
=
τ
(and
positive
previous
cases
that
while
the
first
term
is
positive,
the
second
is
zero
for
τ
SE
with
respect
to
τS , ∂c
= ∂πisones).
/∂τSThus,
+the
∂π second
/∂τSsuch
, and
noting
from
the
of the
of
Laf
f eranalysis
that
∂c
/∂τ
=
0
must
satisfy
forc lower
values
and
negative
forS term
larger
τSCOM
=
τ
(and
positive
previous
cases
that
while
the /∂τ
first
positive,
is
zero
for
τ
S
S
E /∂τLaf=
fM
er0 (and
such
that
∂c
must
satisfy
for
lower cases
values
andwhile
negative
for term
largerisones).
Thus,
τSCOM
S
COM
Laf
f
er
RE
F
P
=
τ
positive
previous
that
the
first
positive,
the
second
is
zero
for
τ
COM
E
≥ τvalues
≥ 1 negative
− α. Also,
limones).
while
lim∂c
∂πSF P=M0/∂τ
finite,
τSCOM
such
that
/∂τ
must
for
lower
forsince
larger
τ = −∞
τ →1 ∂πThus,
τS→1
S is satisfy
Laf f er and
RE /∂τ
E /∂τ
≥ τvalues
≥ 1 negative
− α. Also,
since
limones).
/∂τSSτSCOM
= −∞
while
lim∂c
∂πSF P=M0/∂τ
finite,
τSCOM
τ →1 ∂πThus,
τ →1
S is satisfy
such
that
must
for
lower
and
for
larger
Laf
f
er
RE
S
<
≥ 1.
τ Laf f er ≥ 1 − α. Also, since limτ →1 ∂π RE /∂τS = −∞ while limτ →1 ∂π F P M /∂τS is finite,
τSCOM
COM <
ττSCOM
1.
α−∞ while lim1
≥ 1.
τ
≥ 1 − α.EAlso, since limτ →1 ∂π /∂τS =1−α
/∂τS is finite,
τ →1 ∂π
τSSCOM
α g̃t (1 − τ ) 1−α
= k (·) h (τS ) , where k (·) = µ 1−α
On<the
other hand, ∂c
S 1 is a function of param∂µE
α g̃t (1 − τ ) 1−α
1
τS On<the
1. other hand, ∂c
E
=
k
(·)
h
(τ
)
,
where
k
(·)
=
µ
is
a
function
of param∂c
∂µ =while
1−α
eters
always
positive,
−α (1
− γ=
(1(1−−αγ
/1[(1is−aτfunction
be
Onthat
theisother
hand,
k (·) hh(τ(τSSS)), =
where
k (·)
τSS ) 1−α
of may
paramατSg̃t
S )µ+
S ) (1 − α)]
E
∂µ
∂c
eters
that
isother
always
positive,=while
h(τ(τSS)), =
−α (1
− γ=
τSg̃t(1(1−−αγ
/ [(1is−aτfunction
may
be
1−α
S )µ+
S)) 1−α
S ) (1 − α)]
τ
of
paramOn
the
hand,
k
(·)
h
where
k
(·)
S
) >τS0(1for
>) /1 [(1
− α.
with
positive
orisnegative.
However,
one hcan
that
∂µ
eters
that
always positive,
while
(τSverify
) = −α
(1 −hγ(τ
− ταγ
− τThis,
− α)] may
be
S S
S )S +
S ) (1 together
(τ
)
>
0
for
τ
>
1
−
α.
This,
together
with
positive
or
negative.
However,
one
can
verify
that
h
S S ) / [(1 − τS ) (1 − α)] may be
eters
that
isnegative.
always
positive,
while
(τSverify
)h=(τ−α
(10−hfor
+
ττS0S(1for
γ(τ
S )S
>
any
>−1ταγ
−
α. 1This
completes
the proof
the
fact
that
h (1 − α)
> 0 implies
that
)
>
>
−
α.
This,
together
with
positive
or
However,
one hcan
S )that
S
S
any
> 0 hfor
τ for
> 1τ−
α. 1This
completes
the proof
the
factEor
that
h (1 − α)However,
> 0 implies
thatverify
h (τS )that
positive
negative.
can
)>
>
−
This,
together
with
SCOM
/∂µ
>
0−
forα)τS>≥0 1implies
− one
α, and
≥(τ1Sany
−
α,τ0SSthat
= α.
1. completes
Finally,
note
that
thatfact
∂cEthat
> 0 for
> 1µ−
α. This
the proof
the
h (1
thatsince
h (τSτ)SCOM
COM
COM
/∂µ
>
0
for
τ
≥
1
−
α,
and
since
τ
≥
1
−
α,
that
µ
=
1.
Finally,
note
that
that
∂c
S
)
>
0
for
any
τ
>
1
−
α.
This
completes
the
proof
the
fact
that
h
(1
−
α)
>
0
implies
that
h
(τ
E
COM
COM
S
S
S
inα,
h (τ
rendering
h (τS=
) <1.0. Finally,
Thus, a note
sufficient
for
τS the
> 0second
for τS term
≥ 1−
and
since τSCOM 0,≥thus
1 − α,
that µCOM
that
thatsmall
∂cE /∂µ
S ) approaches
the
second
term
in
h
(τ
)
approaches
0,
thus
rendering
h
(τ
)
<
0.
Thus,
a
sufficient
for
small
τ
S >COM
S since τ
S= 1. Finally, note that
0second
fortoτSbe
≥equal
1−
α,
and
≥
1 − α,
that
µ hthat
thatsmall
∂c /∂µ
S
condition
µ
to
zero
is
that
τ̄
is
sufficiently
small
h
(τ
)
<
0
at
µ
=
0,
or
the
term
in
h
(τ
)
approaches
0,
thus
rendering
(τ
)
<
0.
Thus,
a
sufficient
for
τfor
S
S
S
S
condition
for
µCOM
to be
equal
to(τzero
is that τ̄ is0,sufficiently
smallhthat
h<(τ0.
< 0 ata µsufficient
= 0, or
S )Thus,
the
second
term
in
h
)
approaches
thus
rendering
(τ
)
for
small
τ
COM
S
S
S
=
0
at
µ
=
0,
that
τ̄
<
α
(1
−
α)
/
(1
+
α
(1
−
α)).
since
γ
condition
for µCOM to be equal to zero is that τ̄ is sufficiently small that h (τS ) < 0 at µ = 0, or
0 at
= 0,
τ̄ < αto(1zero
− α) / (1 + α
α)).
since γSS =for
condition
µµ
to that
be equal
τ̄ (1
is −
sufficiently
small that h (τS ) < 0 at µ = 0, or
µ = 0,
that
τ̄ < α (1 − α)is/ that
(1 + α
(1
−
α)).
since γS = 0 at
=
0
at
µ
=
0,
that
τ̄
<
α
(1
−
α)
/
(1
+
α
(1
−
α)).
since
γ
S
Equilibrium
policies in the unavoidable migration regime
Equilibrium policies in the unavoidable migration regime
Equilibrium policies in the unavoidable migration regime
1
1
F Punavoidable
M (t) π̃ F P M (µ,migration
RE (t)
RE (µ, τ ) where K = 1 AE 1−α
Equilibrium
policies
in
the
regime
Rewrite max cE
=
max
K
ω
τ
)
+
ω
π̃
α 1−α
1 ,
1 A
F P M (t) π̃ F P M (µ, τS ) + ω RE (t) π̃ RE (µ, τS ) where K = α
E
wU
Rewrite max cE
=
max
K
ω
,
1−α
α
S
S
1 A
E
F
P
M
F
P
M
RE
αRE
α
1
E
w
α
U
Rewrite
cE = max K ω FRE
(t) π̃ F P M (µ, τS ) + 1−α
ω RE (t)
π̃αRE (µ,
K = α11−αA
,
α
S ) where
F P M (t)max
F PτM
1−α
1−α
1−α
α ,
w
P
M
E
ω
=
(1
−
α)
(T
−
t)
,
ω
(t)
=
t
1
+
(1
−
µ)
γ
,
π̃
=
1
+
(1
−
µ)
γ
U
F PτM
Rewrite
max
c −=
max
Kt) ,ωω RE (t)
(t)=π̃ t 1 +(µ,
τ−
)µ)
+ 1−α
ωα γS(t)
π̃α , π̃(µ,
) =where
K−=µ)α1−α
α wγαS 1−α
1−α
α ,,
S
S
ω FF PP M
(t)
=
(1
α)
(T
−
(1
1
+
(1
1
α
S 1−α
1−α
M (t) =
RE
P M = 1 + (1 −Fµ)
α γF
α γUS 1−α
ωRE
= t 1 observe
+ (1 − µ)
, π̃ FFthe
on π̃ P M1−α
Mα (t),
1 (1
αt) ., ωNow(t)
SP
π̃
µ 1−α
τS−(1α)
−(T
τS )−1−α
that
(µ, τSS )1−α
,α is,
α ωF
α
1−α
F P M=(t)
RE we=can
P M weight
P 1−α
M (t),
Fµ)
P M1−α
1−α
1−α
1 (1
αt) ., ωNow(t)
ωRE
=
−
α)
(T
−
t
1
+
(1
−
µ)
γ
,
π̃
=
1
+
(1
−
γτSS ) , is,
π̃
=
µ
τ
(1
−
τ
)
we
can
observe
that
ω
the
weight
on
π̃
(µ,
SPM
S
S
α
α
RE
F
F
P
M
π̃ RE = µ 1−α
(t), the weight on π̃
(µ, τS ) , is
1 τS (1 − τS ) 1−α
α . Now we can observe that ω
π̃
= µ 1−α τS (1 − τS ) 1−α . Now we can observe that ω F P M (t), the weight on π̃ F P M (µ, τS ) , is
36
36
36
36
38
monotonically decreasing in t, and zero at t = T. Also, ω RE
(t), the weight on π̃ RE
(µ, τS ) , is
monotonically decreasing in t, and zero at t = T. Also, ω RE
(t), the weight on π̃ RE
(µ, τS ) , is
RE
RE
monotonically increasing
in
t,
and
zero
at
t
=
0.
Thus
for
any
t
sufficiently
close
to
0,
the
decreasing in t, and zero at t = T. Also, ω RE (t), the weight on π̃ RE (µ,optimal
τS ) , is
monotonically increasing
at
t
=
0.
Thus
for
any
t
sufficiently
close
to
0,
the
decreasing inint,t,and
andzero
zero
at
t
=
T.
Also,
ω
(t),
the
weight
on
π̃
(µ,optimal
τS ) , is
P M , which from theRE
RE
preceding
cases
has
a
maximum
is equivalent toincreasing
that of maximizing
π̃ FFat
monotonically
inint,t,and
t
=
0.
Thus
for
any
t
sufficiently
close
to
0,
the
optimal
decreasing
andzero
zero
at
t
=
T.
Also,
ω
(t),
the
weight
on
π̃
(µ,
τS ) , at
is
P
M
RE
RE
from
preceding
cases
has
is equivalent
that of maximizing
π̃ Fat
monotonically
increasing
inint,t,and
zero
t ,=twhich
0.
for the
any
t (t),
sufficiently
close
toaπ̃0,maximum
the
decreasing
and
zero
at
= Thus
T.
Also,
ω optimum
thecoincides
weight
on
(µ,optimal
τSπ̃) RE
, at
is
F P M , τ to
PM
=
0,
and
for
any
t
sufficiently
close
to
T
,
the
with
that
of
µ
=
µ
,
which
from
the
preceding
cases
has
a
maximum
at
is
equivalent
to
that
of
maximizing
π̃
monotonically
increasing in t, and zeroFat
0. Thus for any t sufficiently close to 0, the optimal
RE ,,
P Mt ,=close
,
τ
=
0,
and
for
any
t
sufficiently
to
T
,
the
optimum
coincides
with
that
of
π̃
µ=
µFF PP M
which
from
the
preceding
cases
has
a
maximum
at
is
equivalent
to
that
of
maximizing
π̃
monotonically
increasing
in
t,
and
zero
at
t
=
0.
Thus
for
any
t
sufficiently
close
to
0,
the
optimal
M , τmaximum
M ,This
which
µ any
= 1,t τsufficiently
= 1π̃ FF−PPα.
establishes
result coincides
incases
the Proposition.
= that
0, andofat
for
close
tofrom
T , the
optimum
with
that of π̃ RE
µ=
µFhas
which
thethe
preceding
has
a maximum
at,
is
equivalent
to
maximizing
P Ma
M ,This
which
a, τmaximum
µ any
= 1,t τsufficiently
= 1π̃ − α.
establishes
result coincides
incases
the Proposition.
= that
0, andofat
for
close
tofrom
T , the
optimum
with
that of π̃ RE
µ=
µFhas
which
thethe
preceding
has
a maximum
at,
is
equivalent
to
maximizing
P
M
RE
which
a
maximum
at
µ
=
1,
τ
=
1
−
α.
This
establishes
the
result
in
the
Proposition.
,
τ
=
0,
and
for
any
t
sufficiently
close
to
T
,
the
optimum
coincides
with
that
of
π̃
,
µ = µFhas
P Ma
which
= 1,t τsufficiently
= 1 − α. This
result coincides
in the Proposition.
, τmaximum
= 0, and at
forµ any
closeestablishes
to T , the the
optimum
with that of π̃ RE ,
µ = µ has
which has a maximum at µ = 1, τ = 1 − α. This establishes the result in the Proposition.
B
Migration
Regime
whichAppendix:
has a maximum The
at µ =Avoidable
1, τ = 1 − α. This
establishes the
result in the Proposition.
B
B
B
B.1
B
B.1
B
Appendix:
The
Appendix:
The
Appendix:
FPM PoliciesThe
Appendix:
FPM PoliciesThe
Appendix:
The
Avoidable
Avoidable
Avoidable
Avoidable
Avoidable
Migration
Migration
Migration
Migration
Migration
Regime
Regime
Regime
Regime
Regime
B.1 FPM Policies
As
be expected,
B.1could
FPM
Policieswhen the urban wages increases and the society transitions from the “no
As
could
be expected,
when the urban wages increases and the society transitions from the “no
B.1
FPM
Policies
migration”
the “unavoidable
regime,
increases
in the
urban
wage force
the the
elite“no
to
As
could
betoexpected,
when themigration”
urban wages
increases
and the
society
transitions
from
B.1
FPM
Policies
migration” to the “unavoidable migration” regime, increases in the urban wage force the elite to
As could be expected, when the urban wages increases and the society transitions from the “no
give
policybeconcessions
(in thethe
form
of lower
taxation
or and
better
rights
the
subsistence
migration”
toexpected,
the “unavoidable
migration”
regime,
increases
in property
the
urban
wageinforce
the
elite“no
to
As could
when
urban
wages
increases
the
society
transitions
from
the
givecould
policybeconcessions
(in thethe
form
of lower
taxation
or and
better
rights
the
subsistence
migration”
toexpected,
the “unavoidable
migration”
regime,
increases
in property
the
urban
wageinforce
the
elite“no
to
As
when
urban
wages
increases
the
society
transitions
from
the
areas)
to tryconcessions
avoid
migration.
Theofelite
gradually
reduces
τ inand
µ from
τ̄ and
µ,
their
give
policy
(in the form
lower
taxation
or better
property
inforce
the
subsistence
migration”
totothe
“unavoidable
migration”
regime,
increases
theincreases
urbanrights
wage
the
elite
to
areas)
to
try
to
avoid
migration.
The
elite
gradually
reduces
τ
and
increases
µ
from
τ̄
and
µ,
their
give policy concessions
(in the form
of lowerregime,
taxation
or better
property
rights
the the
subsistence
migration”
tono
themigration
“unavoidable
migration”
in w
the, urban
wageinforce
elite
to
levels
in
regime.
agradually
range
ofincreases
values
for
these
concessions
imply
that
areas)
to the
tryconcessions
to avoid
migration.
TheOver
reduces
τ and
increases
µ
from
τ̄
and
µ,
their
give
policy
(in the
form
ofelite
lower
taxation
or better
property
rights
in
the
subsistence
U
levels
in
no avoid
migration
regime.
agradually
range
of reduces
values
for
w
, theserights
concessions
imply
that
areas)
to the
tryconcessions
to
migration.
TheOver
elite
τ and
µ from
τ̄ and
µ, their
give
policy
(in
the
form
of
lower
taxation
or
better
property
in
the
subsistence
U increases
there
fact
migration
evenThe
though
migration
threat
iswpresent.
the
elite
, these However,
concessions
imply
that
levels isin
nono
migration
regime.
Over
range
of reduces
values
for
areas)
tointhe
try
to
avoid
migration.
eliteathe
gradually
τ and
µ from τ̄once
and
µ, their
U increases
there
isin
inthe
fact
migration
evenThe
though
migration
threat
iswpresent.
once
the
elite
levels
nono
migration
regime.
Over
athe
range
of reduces
values
for
, these However,
concessions
imply
that
areas)
to
try
to
avoid
migration.
elite
gradually
τ
and
µ
from
τ̄
and
µ,
their
U increases
reaches
taxation
and property
rightsathe
as
givenof by
the
unavoidable
migration
regime,
will
there
isinzero
inthe
fact
migration
even though
migration
threat
However,
once
theit that
elite
levels
nonomigration
regime.
Over
range
values
for iswpresent.
concessions
imply
U , these
reaches
taxation
and property
rightsathe
as
givenof by
the
unavoidable
regime,
will
there
isinzero
inthe
fact
nomigration
migration
even though
migration
threat
However,
once
theit that
elite
levels
nono
regime.
Over
range
values
for iswpresent.
thesemigration
concessions
imply
U , further
choose
to
give
more
policy
concessions.
From
this
point
forward,
increases
in
the
urban
reaches
zero
taxation
and
property
rights
as
given
by
the
unavoidable
migration
regime,
it
will
there is in fact no migration even though the migration threat is present. However, once the elite
chooseistozero
give
no
more
policy
concessions.
From
thisby
point
forward,
further
increases
in the
urban
reaches
taxation
and
property
rightsthe
as migration
given
the
unavoidable
migration
regime,
it
will
there
in
fact
no
migration
even
though
threat
is
present.
However,
once
the
elite
wage generate
positive
migration.
The
nextFrom
summarizes
the solution
more
choose
tozero
givetaxation
no
moreand
policy
concessions.
thisby
point
forward,
further
increases
inprecisely.
the it
urban
reaches
property
rights
asproposition
given
the
unavoidable
migration
regime,
will
wage
generate
positive
migration.
The
next
proposition
summarizes
the
solution
more
precisely.
choose tozero
givetaxation
no moreand
policy
concessions.
thisby
point
further
increases
in the it
urban
reaches
property
rights From
as given
the forward,
unavoidable
migration
regime,
will
wage generate
positive
The nextFrom
proposition
summarizes
the solution
moreinprecisely.
choose
to give no
more migration.
policy concessions.
this point
forward, further
increases
the urban
wage
generate
positive
migration.
The
next
proposition
summarizes
the
solution
more
precisely.
choose
to
give
no
more
policy
concessions.
From
this
point
forward,
further
increases
in
the
urban
Proposition
(Summary
of FPM
policies
in
regime) Suppose
the elite
wage
generate 4
migration.
The
next
summarizes
the solution
more precisely.
proposition
the
avoidable
migration
Proposition
4positive
(Summary
of FPM
policies
in
the
avoidable
regime)
the elite
∗ ).migration
∗∗ be theSuppose
wage
generate
positive
migration.
The
next
proposition
summarizes
the
solution
more
precisely.
∈
w̄
τ̄
,
µ
,
w̄
(0,
µ
Also,
let
µ
level
of
property
maximizes
the
first
term
in
(12)
and
w
Proposition 4 (Summary of FPM policies
in
the
avoidable
regime)
the elite
U
∗ ).migration
∗∗ be theSuppose
∈
w̄
τ̄
,
µ
,
w̄
(0,
µ
Also,
let
µ
level
of
property
maximizes the 4first
term in (12)
and wpolicies
Proposition
(Summary
of FPM
in
the
avoidable
migration
regime)
Suppose
the elite
U
∗ ).asAlso,
∗∗
τ̄ ,FPM
, avoidable
rights in the
migration
with
policies
described
in
Proposition
1.
w̄
µ
let
µ
be
the
level
of
property
w̄
(0,
µ
maximizes
theunavoidable
term in
(12)
andregime
wpolicies
Proposition
4first
(Summary
of FPM
in
the
migration
regime)
Suppose
theThen,
elite
U ∈
∗
∗∗
rights in the
migration
described
inbeProposition
∈ with
w̄ in
τ̄ ,FPM
µ , avoidable
w̄policies
(0, µ∗ ).as
Also,
let µregime)
theSuppose
level of1.
property
maximizes
theunavoidable
first
term in
(12)
andregime
wpolicies
Proposition
(Summary
of FPM
the
migration
theThen,
elite
∗Ufrom
∗∗
with w̄in
(τ,the
µ)
as4first
defined
(10)
and
µ
Remark
1,
the
unique
political
equilibrium
features
the
rights
migration
regime
with
FPM
policies
as
described
in
Proposition
1.
Then,
∈
w̄
τ̄
,
µ
,
w̄
(0,
µ
)
.
Also,
let
µ
be
the
level
of
property
maximizes
theunavoidable
terminin
(12)
and
w
∗Ufrom Remark 1, the ∗unique
∗∗
(12)
with w̄in
(τ,the
µ)
asfirst
defined
inin
(10)
and
µ
political
equilibrium
features
the
rights
unavoidable
migration
regime
with
FPM
policies
as
described
in
Proposition
1.
Then,
)
.
Also,
let
µ
be
the
level
of
property
∈
w̄
τ̄
,
µ
,
w̄
(0,
µ
maximizes
the
term
and
w
F
P
M
F
P
M
U
∗
property
rights
µF Punique
: described
following
level
taxation
τSF P and
with w̄in
(τ,the
µ) unavoidable
asofdefined
inmigration
(10)
µ∗ from
Remark
1,policies
the
political in
equilibrium
features
the
rights
regime
with
FPM
Proposition
1. Then,
M and
Mas
and
property
rights
µ
:
following
level
of
taxation
τ
with
w̄
(τ,
µ)
as
defined
in
(10)
and
µ
from
Remark
1,
the
unique
political
equilibrium
features
the
rights in the unavoidable migration
regime
with FPM policies
described in Proposition 1. Then,
M and
F P Mas
∗ from
τSSFF PP and
property
rights
µ
:
following
taxation
with w̄ (τ,level
µ) asofdefined
in (10)
µ
Remark
1,
the
unique
political
equilibrium
features
the
M
F
P
M
∗
and
property
µµ,F Pµ
following
level
ofdefined
taxation
τSF Pτand
∗∗ )in
FPM
Frights
P M 1,
∗∗ :,and
F P M falls,
with
w̄if(τ,
µ)<asw̄
(10)
µ ∈from
Remark
the
unique
political
equilibrium
features
the
M
M
[0,
τ̄
],
µ
∈
increases,
τ
(0,
µ
,
then
as
w
1.
w
U
U
and
property
following
level
of(0,
taxation
τSF PτM
Frights
P M ∈ µ
∗∗ ) , then
∗∗ :,and as w increases, τSF P M falls,
SF P M
FP
M
∈
[0,
τ̄
],
µ
µ,
µ
<
w̄
µ
1. if wU
U
and
property
rights
µ
:
following
level
of
taxation
τ
F
P
M
F
P
M
∗∗
F
P
M
∗∗
1. if
w̄increases,
(0, µ∗∗ ) , then
τSSF P M ∈ [0, τ̄ ], µF P M ∈ µ, µ∗∗ ,and as wU increases, τSSF P M falls,
or Sboth.
or wµUFF PP<M
1. if
w̄increases,
(0, µ∗∗ ) , then
τSF P M ∈ [0, τ̄ ], µF P M ∈ µ, µ∗∗ ,and as wU increases, τSF P M falls,
or both.
or wµUF P<M
M
(0, µ∗∗
) , then
τSF P M ∈ [0, τ̄ ], µFFPPMM ∈ ∗∗
µ, µ∗∗ ,and as wU increases, τSF P M falls,
1. if
or both.
or wµUF P<M w̄increases,
∗∗
falls,
<Mw̄
w̄increases,
(0,µµ∗∗ )),, then
then
τ̄ ], µµF P M =∈µ∗∗
µ,. µ ,and as wU increases, τS
1. if
or both.
or wµUUF P≥
(0,
ττSFFSPP M
=∈0[0,
and
2.
M
or both.
or wµUF P≥Mw̄increases,
(0, µ∗∗ ) , then
τSF P M = 0 and µF P M = µ∗∗ .
2. if
increases,
or
both.
or
µ
2. if wU ≥ w̄ (0, µ∗∗ ) , then τSF P M =0 and µF P M = µ∗∗ .
2. if wU ≥ w̄ (0, µ∗∗ ) , then τSF P M =0 Iand µF P M = µ∗∗ .
w̄ (0, µ∗∗ )is, then
τSF Pmin
=L
0 IRand
µ∗∗ . to wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗∗ ) . Since
2. if wThe
/T̃ ,µL/
T̃M =
subject
Proof.
to max
U ≥ problem
M
F
P
w̄ (0, µ )is, then
τS min=L
0 and
µ . to wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗ ) . Since
2. if wThe
/T̃ ,µL/T̃ =
subject
Proof.
to max
U ≥ problem
w̄ τ̄ , µ , w̄I (0, µ∗ ) . Since
I , The
/T̃to, L/
T̃ subject
wU to
∈ maximize
Proof.
problem
is to
max
min LIR
I
R
it
is
preferable,
if
unconstrained,
maximize
L/T̃ to
/T̃µ. )However,
L
≥
L
w̄ τ̄ , µ ,L
. Since
IR , The
Proof.
problem
is to
max min LIR /T̃to, L/
T̃ subject
tothan
wU to
∈ maximize
w̄IR(0,
it
is
preferable,
if
unconstrained,
maximize
L/
T̃
than
/T̃µ. ∗ )However,
L
≥
L
w̄ τ̄ , µthe
. Since
IR , The
,L
w̄IR(0,
Proof.
problem
is is
to
max
min LIRthe
/T̃to,minimum
L/
T̃ subject
tothan
wUexpressions,
∈ maximize
∗
since
the
elite’s
problem
to
maximize
of
the
two
unconstrained
it
is
preferable,
if
unconstrained,
maximize
L/
T̃
to
L
/
T̃
.
However,
L
≥
L
IR , The
/T̃to,minimum
L/
T̃ subject
tothan
wUexpressions,
∈ maximize
w̄ τ̄ , µ the
,L
w̄IR(0,
µ. )However,
. Since
Proof.
problem
is is
to
max
min LRthe
since
elite’s
problem
to
maximize
of
the
two
unconstrained
it
is
preferable,
if
unconstrained,
maximize
L/
T̃
to
/
T̃
L ≥ Lthe
L
IR , it
IR unconstrained
maximum
of
will
in
fact,
over
the
relevant
range
of
wages
of
the
avoidable
migration
regime,
be
since
elite’s
problem
is
to
maximize
the
minimum
of
the
two
expressions,
the
is
preferable,
if
unconstrained,
to
maximize
L/
T̃
than
to
maximize
L
/
T̃
.
However,
L ≥ Lthe
L
IR , it
maximum
ofisT̃T̃Lpreferable,
will
in fact,
the relevant
of wages
the expressions,
avoidable
migration
be
since
problem
is
to
maximize
thetorange
minimum
ofL/the
two
the
if over
unconstrained,
maximize
T̃ofthan
to maximize
LIR
/T̃ . regime,
However,
L ≥ Lthe
R I elite’s
R unconstrained
maximum
of
will
in
fact,
over
the
relevant
range
of
wages
of
the
avoidable
migration
regime,
be
since
the
elite’s
problem
is
to
maximize
the
minimum
of
the
two
expressions,
the
unconstrained
/
T̃
.
This
means
that
the
elite
will
have
to
content
itself
with
the
“best”
combination
of
above
L
L
IR /elite’s
T̃This
will
range
toofcontent
maximum
of
in fact,
over
theelite
relevant
wages
the with
avoidable
migration
regime, be
since
the
problem
isthat
to maximize
the have
minimum
of theof
two
expressions,
thecombination
unconstrained
T̃
.
means
the
itself
the
“best”
of
above
L
L will
I
T̃
R
maximum
of
will
in
fact,
over
the
relevant
range
of
wages
of
the
avoidable
migration
regime,
be
L
I
/
T̃
.
This
means
that
the
elite
will
have
to
content
itself
with
the
“best”
combination
of
above
L
Lmaximizes
)over
such
that
L/T̃ have
≤ toL
/T̃ (equivalently,
wU“best”
≤ w̄ (τcombination
Hence,
policiesLIR
(that
T̃
S , µ)).
maximum
of
will
in
fact,
the
relevant
range
of
wages
of
the
avoidable
migration
regime,
be
Lthat
I
R
/
T̃
.
This
means
the
elite
will
content
itself
with
the
of
above
T̃
)
such
that
L/
T̃
≤
L
/
T̃
(equivalently,
w
≤
w̄
(τ
,
µ)).
Hence,
policies
(that
maximizes
I
T̃
R
U
S
L
/T̃of
. This
means
the
elite
will
have
toLIR
content
itself
with
the
“best”
combination
of
above
LIR
T̃that
)
such
that
L/
T̃
≤
/
T̃
(equivalently,
w
≤
w̄
(τ
,
µ)).
Hence,
policies
(that
maximizes
,
one
can
think
of
the
elite
as
solving
the
problem:
for
a
range
values
of
w
U
S
L
I
U
R
/T̃of
. This
the
elite
will
toL content
itself
the
of
above
LR
such
that
L/ofT̃ have
≤ elite
/T̃ solving
(equivalently,
wU“best”
≤ w̄ (τcombination
policies
(that
maximizes
,) one
can
think
the
as
thewith
problem:
for
a range
valuesmeans
of wUT̃T̃Lthat
S , µ)). Hence,
I
R
suchcan
that
L/ofT̃ the
≤ elite
LIRas
/T̃ solving
(equivalently,
wU ≤ w̄ (τS , µ)). Hence,
policies
(that
think
the problem:
for
a range
of maximizes
values of wUT̃L,) one
such
that
≤ elite
LRas
/≤
T̃ solving
wU ≤ w̄ (τS , µ)). Hence,
policies
(that
can
think
ofT̃ the
the
for
a range
of maximizes
values of w T̃ ,) one
L/
T̃ L/
subject
w
w̄ (equivalently,
(τS , µ)
. problem:
(19)
max
U as
think
of the to
elite
solving
the
problem:
for a range of values of wU
U , onemax
τcan
(19)
s ,µ L/T̃ subject to wU ≤ w̄ (τS , µ) .
think
of
the
elite
as
solving
the
problem:
for a range of values of wU , onemax
τcan
,µ
L/T̃ subject to wU ≤ w̄ (τS , µ) .
(19)
s
τs ,µ L/T̃ subject to wU ≤ w̄ (τS , µ) .
(19)
max
∗∗
I
τ
,µ
max
L/
T̃
subject
to
w
≤
w̄
(τ
,
µ)
.
(19)
s
U that (τSS , µ) = (0, µ ) and L /T̃ is smaller
is
large
enough
However, this reasoning fails when
w
U
τs ,µwL/T̃
max
subject
to wU ≤
w̄ (τ
. = (0, µI∗∗ ) and LIR /T̃ is smaller
(19)
SS,,µ)
is
large
enough
that
(τ
µ)
However, this reasoning fails when
U
∗∗
I
R
τs ,µw is large enough that
L
∗∗
∗∗ )(τ
R
,
µ)
=
(0,
µ
)
and
L
/
T̃
is
smaller
However,
this
reasoning
fails
when
I∗∗
U
S
than
L/
T̃
(that
is,
w
>
w̄
(0,
µ
)).
Since
(τ
,
µ)
=
(0,
µ
maximizes
,
there
can
be
no
other
I
R
L
is large
(τmaximizes
µT̃IR∗∗, )there
and L
T̃
smaller
However,
reasoning
fails
wUSince
S , µ) = (0, L
beis
than
L/T̃ this
(that
is, wU
w̄ (0,when
µ∗∗
(τSS ,enough
µ) = (0,that
µ∗∗
can
other
IR /
U >fails
∗∗ )).
∗∗ )
is large
enough
that
(τmaximizes
µT̃IR∗∗, )there
and L
/T̃
isIno
smaller
However,
this
reasoning
when
wUSince
S , µ) = (0, L
than
L/
T̃
(that
is,
w
>
w̄
(0,
µ
)).
(τ
,
µ)
=
(0,
µ
)
can
be
no
other
I
R
U
S
∗∗
∗∗
R ) L/
However,
this
fails
when
w
is
large
enough
that
(τ
,
µ)
=
(0,
µ
and
L
/
T̃
is
smaller
/
T̃
combination
ofreasoning
policies
that
yields
a
higher
utility
for
the
elite
and
satisfies
T̃
≤
L
I
T̃
U
S
than
L/
T̃
(that
is,
w
>
w̄
(0,
µ
)).
Since
(τ
,
µ)
=
(0,
µ
)
maximizes
,
there
can
be
no
other
R
IR /T̃ ..
LR
U that yields
S
∗∗ )).
∗∗
combination
of policies
a
higher
utility
for
the
elite
and
satisfies
L/
T̃
≤
L
I ,
T̃
.
than
L/
T̃
(that
is,
w
>
w̄
(0,
µ
Since
(τ
,
µ)
=
(0,
µ
)
maximizes
there
can
be
no
other
I
R
L
S
/T̃other
combination
of policies
that
yields
a higher
utility
for(0,
the
and satisfies
L/T̃ can
≤ be
LIRno
T̃R , than L/T̃ (that
is, wU
w̄ (0,
µ∗∗ )).
Since (τ
µ∗∗elite
) maximizes
there
U >
S , µ) =
combination
of policies
that
yields
a higher
utility
for the
elite
and satisfies
T̃ L/T̃ ≤ LIR /T̃ .
/
T̃
combination of policies that yields a higher utility
for
the
elite
and
satisfies
L/
T̃
≤
L
37 for the elite and satisfies L/T̃ ≤ LIR /T̃ ..
combination of policies that yields a higher utility
R
37
37
37
37
37
39
Therefore, only for wU ≤ w̄ (0, µ∗∗
) the solution is given by the solution to (19), and for
Therefore,∗∗ only for wU ≤ w̄ (0,
µ∗∗ ) the solution is given by the solution to (19), and for
∗∗
wU > w̄ (0, µ∗∗ ) it is (τS , µ) = (0, µ∗∗ ).
wU > w̄ (0, µ ) it is (τS , µ) = (0, µ ).
As for the characteristics of the solution to (19), note the following. First, recall that w̄ (τS , µ)
As for the characteristics of the solution to (19), note the following. First, recall that w̄ (τ , µ)
is increasing in µ for µ < µ∗∗ , is maximized at µ∗∗ , and is decreasing thereafter. Note also thatS µ∗∗
1
at µ , and is decreasing thereafter. Note also that µ∗∗
is increasing Iin µ for µ < µ I , is maximized
1−α
LR
LR
w̄(τ
,µ)
1
L
L
S
maximizes LT̃IR , but since LT̃IR = w̄(τSw,µ)
1−α L and L is monotonically decreasing in µ, it must be
u
T̃ and T̃ is monotonically decreasing in µ, it must be
maximizes T̃ , ∗∗
but since
=
wu 1, T̃this implies
T̃
T̃
Remark
that w̄ (τ , µ) in the constraint of (19) is
the case that µ∗∗ < µ∗∗ . From
the case that µ < µ . From Remark 1, this implies that w̄ (τSS , µ) in the constraint of (19) is
increasing in µ. We also know that w̄ (τS , µ) is decreasing in τS . Second, the objective function,
increasing
in µ. We also know that w̄ (τS , µ) is decreasing in τS . Second, the objective function,
L
L , is decreasing in µ and increasing in τS . These two observations imply that the constraint will
T̃
,
is
decreasing
in µ and increasing in τS . These two observations imply that the constraint will
T̃
always
bind and, regardless of the exact combination
of policies (τ , µ) that solve (19), an increase
always bind and, regardless of the exact combination of policies (τS , µ) that solve (19), an increase
in wU will necessarily imply a decrease in τS , and increase in µ, orS both to satisfy such constraint.
in wU will necessarily imply a decrease in τS , and increase in µ, or both to satisfy such constraint.
B.2
B.2
RE Policies
RE Policies
Since µ = 1 is optimal in either extreme regime, it is optimal in the avoidable migration regime,
Since µ = 1 is optimal in either extreme regime,
it is optimal in the avoidable migration regime,
where LR in the maximand is either L or LIIR . Fixing µ = 1, this is then a simple maximization
where LR in the maximand is either L or LR . Fixing µ = 1, this is then a simple maximization
problem in one variable. In particular, when feasible the elite will set τS such that LIIR = L.
problem in one variable. In particular, when feasible the elite will set τS such that LR = L.
Intuitively, this equilibrium level of taxation decreases as the rural area becomes
more attractive
Intuitively, this equilibrium level of taxation decreases as the rural area becomes more attractive
and the elite tries to avoid migration. When migration becomes unavoidable, as noted above, the
and the elite tries to avoid migration. When migration becomes unavoidable, as noted above, the
desired level of taxation reaches 1 − α. Of course, if the exogenous limit on taxation τ̄ is binding,
desiredRE
level of taxation reaches 1 − α. Of course, if the exogenous limit on taxation τ̄ is binding,
then τSRE = τ̄ .
then τS = τ̄ .
Proposition 5 (Summary of RE policies
in the avoidable migration regime) Suppose the elite
Proposition 5 (Summary of RE policies
in the avoidable migration regime) Suppose the elite
solves problem (16) and wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗∗ ). Then, with w̄ (τ, µ) as defined in (10) and µ∗∗
w̄ (τ, µ) as defined in (10) and µ
solves problem (16) and wU ∈ w̄ τ̄ , µ , w̄ (0, µ ) . Then, with
= min{τ̄ , τ̃ }, where
from Remark 1, the
unique political equilibrium features µRE
= 1 and τSRE
RE
from Remark 1,f er
the
unique political equilibrium features µ
= 1 and τSRE = min{τ̄ , τ̃ }, where
.
τ̃ ∈ 1 − α, τ Laf
and
is
decreasing
in
w
τ̃ ∈ 1 − α, τ Laf f er and is decreasing in wU
U.
Proof. Fixing µ = 1, this is a standard maximization of Leontieff-type preferences on one variable,
1−α
preferences1 on one variable,
Proof. Fixing µ = 1, this is a standard maximization of Leontieff-type
1−α .
1
τS . The elite will set τS such that LIIR = L, or wU = AE (1/L) t (1 − τS ) 1−α
+
T
−
t
τS . The elite will set τS such that LR = L, or wU = AE .
(1/L) t (1 − τS ) 1−α + T − t
1−α
1
1−α
1−α
1
which is decreasing in wU .
Solving for τS , this is τS = 1 − (1/t) L (wU /AE ) 1−α − (T − t)
− (T − t)
which is decreasing in wU .
Solving for τS , this is τS = 1 − (1/t) L (wU /AE )
B.3
B.3
COM Policies
COM Policies
A general characterization of equilibrium policies for the combined problem is more complicated.
A general characterization of equilibrium policies for the combined problem is more complicated.
However, from the preceding analysis some of its key features are easily established.
However, from the preceding analysis some of its key features are easily established.
Proposition 6 (Summary of COM
policies
in the avoidable migration regime) Suppose the elite
Proposition 6 (Summary of COM
policies
in the avoidable migration regime) Suppose the eliteF P M ,µ
solves problem (12) and wU ∈ w̄ τ̄ , µ , w̄ (0, µ∗∗ ). Then, with w̄ (τ, µ) as defined in (10), τSFF PP M
solves problem
(12) and wU ∈ w̄ τ̄ , µ , w̄ (0, µ ) . Then, with w̄ (τ,∗ µ) as defined in (10), τS M , µF P M
RE
RE
and µ∗ from Remark 1, the unique
and τSRE , µRE given by Propositions 4 and 5, respectively,
pounique
given by Propositions 4 and 5, respectively,
and µ from Remark 1, theCOM
and τS , µ
: (i)political equilibrium features the following level of taxation τSCOM
and
property
rights
µ
if
COM
COM
litical equilibrium featuresF the
τS
and
propertyRErights
µ
: (i) if
P M ,following
COM =level
F P of
M ;taxation
COM
COM
RE
t ∈ (0, t], then τSCOM
=
τ
µ
µ
if
t
∈
[
t̄,
T
],
then
τ
=
τ
,
µ
=
µ
=
1.
t ∈ (0, t], then τSCOM = τSSF P M , µCOM = µF P M ; if t ∈ [t̄, T ], then τSSCOM = τSSRE , µCOM = µRE = 1.
Proof. Follows from the proof for COM policies in the unavoidable regime case.
Proof. Follows from the proof for COM policies in the unavoidable regime case.
38
38
40
41
42