Endogenous Institutional Change After Independence

Abstract

A key event in economic history was the independence of nearly ninety former colonies after World War II. On the basis of qualitative and quantitative evidence, we argue that independence often constituted an institutional disequilibrium that the new regimes reacted to in very different ways. We present a model of endogenous changes in property rights institutions where an autocratic post colonial ruler faces a basic trade-off between stronger property rights, which increases his dividends from the modern sector, and weaker property rights that increases his ability to appropriate resource rents. The model predicts that revenuemaximizing regimes in control of an abundance of resource rents and with insignificant interests in the modern sector will rationally install weak institutions of private property, a prediction which we argue is well in line with actual developments in for instance DR Congo, Ghana, and Zambia.