## The Enforcement of Property Rights and Underdevelopment

_IMF Working Papers, September 1, 1999_

## Source details

**Canonical URL:** [The Enforcement of Property Rights and Underdevelopment](https://www.imf.org/en/publications/wp/issues/2016/12/30/the-enforcement-of-property-rights-and-underdevelopment-3277)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/the-enforcement-of-property-rights-and-underdevelopment-3277/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/the-enforcement-of-property-rights-and-underdevelopment-3277/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/the-enforcement-of-property-rights-and-underdevelopment-3277/bundle-manifest.json)

## Bibliographic details
- Authors: Era Dabla-Norris, Scott Freeman
- Published: September 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451854961.001

---

### Summary
- This paper formalizes the role of legal infrastructure in economic development in a general equilibrium model with endogenously determined property rights enforcement.
- The model illustrates the mutual importance of property rights protection and market production by a multiplicity of equilibria:
  - In one equilibrium, property rights are enforced and market activity is unhampered.
  - In the other equilibrium, property rights are not enforced, which discourages economic activity and leaves the economy without the resources and incentives to enforce property rights.
- The paper highlights that even identically endowed economies may find themselves in very different equilibria.

### Model and Mechanism
- Framework: general equilibrium model with endogenous determination of property rights enforcement.
- Core mechanism:
  - Property rights enforcement and market production are mutually reinforcing.
  - Enforcement requires resources and incentives that derive from economic activity.
  - Lack of enforcement reduces expected returns to market activity, suppressing the resource base needed for enforcement.

### Main Findings
- Existence of multiple equilibria characterized by starkly different outcomes for market activity and property rights enforcement.
- A non-enforcement equilibrium is self-reinforcing: low enforcement → low economic activity → insufficient resources/incentives to enforce property rights.
- Identically endowed economies can diverge into different equilibria solely due to differences in enforcement dynamics.

### Implications
- Legal infrastructure and enforcement capacity are central to economic development outcomes.
- Strengthening property rights enforcement can be pivotal to moving an economy from a low-activity equilibrium to a high-activity equilibrium (as implied by the model’s structure and multiplicity of equilibria).

---

## Content in this bundle

- **The Enforcement of Property Rights and Underdevelopment - WP/99/127**
  - [The Enforcement of Property Rights and Underdevelopment - WP/99/127 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp99127.pdf.md){rel="alternate" type="text/markdown"}
  - [The Enforcement of Property Rights and Underdevelopment - WP/99/127 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp99127.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-enforcement-of-property-rights-and-underdevelopment-3277_