Educated Bandits: Endogenous Property Rights and Intra‐Elite Distribution of Human Capital

Abstract

This article presents a simple model of endogenous institutions linking property rights to the distribution of human capital between political and economic elite groups. In the absence of institutional constraints, the commitment problem of the political elites is intensified, because their human capital can turn out to be a double‐edged sword raising their efficiency in predation as well as in production. In general, the more human capital the political elites have, the stronger the institutional concessions they are ready to offer to attarct investment. Provided that predation depends sufficiently on human capital, the political elites can credibly commit to respect property rights by specializing in fields that are relevant for the priavte sector. Brain drain can undermine the transition to stable property rights even when the political elites are well‐educated. Comparative narratives from Malaysia and Zimbabwe are presented to motivate the theoretical discussion.