The Origins of Political Institutions and Property Rights: Time Inconsistency Vs. Opacity.

Despite the relevance of strong political and property rights, we still lack a unified framework identifying their origins and interaction. In our model, the elite can elicit the citizens' cooperation in investment by granting a more inclusive political process, which allows them to select the tax rate and organize public good provision, and by punishing suspected shirking through the restriction of private rights. When the investment return is small, cooperation can only be attained under strong political and property rights and full taxation. When, instead, it is intermediate, the elite keeps control over fiscal policies and can implement partial taxation. When, finally, the investment return is large, the elite can also weaken the protection of private rights. Embracing the stick, however, is optimal only when production is sufficiently transparent, and, thus, punishment effectively disciplines a shirking citizen. These predictions are consistent with novel data on the division of the decision-making power, the strength of the private rights on land, the provision of public goods and the geographic conditions determining the expected return on farming and its opacity in a panel of 44 major Mesopotamian polities spanning each half-century between 3050 and 1750 BCE. Crucially, our estimates are quite similar when we also control for the trade potential, the severity of external and internal conflicts and the degree of urbanization.