Two Paths to Prosperity when Property Rights Enforcement is Weak

Abstract

Governments are not always the most effective mechanism for guaranteeing private investment. In many countries governments are unable to enforce property rights, whatever the degree of protection promised by the law. In this context, I argue that there are at least two alternative private paths to prosperity. Firstly, businesses can adopt production technologies that are less sensitive to institutional voids. These are cheaper, mobile versions of existing technologies, so they can reduce exposure to the hold-up problem. Secondly, entrepreneurs can implement employee ownership, together with other motivational strategies, in order to preserve the ownership itself. Employees are thus encouraged to support the current allocation of property rights instead of challenging it.