Crime(expropriation) and the existence of multiple equlibria in capital accumulation

One main insight from growth theory is that capital accumulation is not enough, if one wishes to explain economic growth and the industrial revolution. Some “technological” factors or at least a much broader way of looking at capital accumulation must be in place. Institutions are only able to explain some minor difference in income, not economic growth. This view seems reasonable within a western hemisphere, but as an explanation for the extremely high income differentials between world countries, is seems problematic. Implicit, any downgrading on the importance of institutions seems to depend on an assumption on an exogenous discount rate. In this paper I will ask, what will happen, if we assume, that people which are poor, have a higher incentive to expropriate, from the capital base, which we confusingly sometimes call a crime and other times call income distribution. The effect on the capital stock is more or less the same (assuming away any relevant discussion of public goods).



The main thesis in this paper is that an weak central planner, which is unable to set a high enough punishment (higher than a natural rate), in turn would be “rewarded” by a higher risk premium, which in turn would hurt the capital stock, lower income, and therefore turn the incentives to “steal” even higher. The negative forces could become so strong, that it is able to overwhelmed the forces from the Inada condition, meaning that the return of capital becomes higher and higher. Then a society is on the path to destruction. Looking at it another way, if punishment is high enough, then the capital stock will grow, income turns higher, and the time horizon therefore turns higher. This will lower the natural rate of punishment, leading to a somewhat more relaxing view on crime, punishment and expropriation.

The implicit conclusion is, that one should be very careful, trying to export any institutional setup from high income countries to countries with lower income.