Social Fractionalization, Endogenous Property Rights, and Economic Development

Abstract

We investigate how social composition affects competitive and cooperative behavior in a linear growth model without a priori secure property rights. If a society is homogenous or highly fractionalized it is in the self-interest of people to cooperate. The first best allocation is enforced through trigger strategies, property rights turn out to be secure, and growth is independent from social fractionalization. If a society is polarized, i.e. if it consists of a small number of equally sized groups, property rights can turn out as unenforceable. If so, groups follow an exploitive strategy that leads to low investment and growth. In this case the rate of growth is continuously decreasing in the degree of fractionalization and possibly negative.Africa’s growth tragedy; property rights; social fractionalization; differential games; trigger strategies