Property Rights and 'Original Sin' in China: Transaction Costs, Wealth Creation, and Property Rights Infrastructure

Type:
SCID Working Paper 291

Author(s):

Published:
09/10/06

Region:
China

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Abstract:
The phenomenon associated with private taking of state assets and lack of clarity in ownership of private property rights is commonly called “original sin” within China, as the owners of private business are unable to explain clearly the origin of such accumulated wealth. Applying new institutional economics, this paper develops an analytic framework to distinguish “original sin” of criminal nature from non-criminal property rights disputes. The paper suggests: (1) When transaction costs are high and there is net wealth creation, conflicts between the private businessmen and the state/public should be treated as property rights disputes and should be dealt with according to principles similar to the “liability rule” applied to the non-criminal cases in the western legal system. (2) When transaction costs are low and there is no net wealth creation, conflicts should be treated as criminal cases and should be dealt with according to principles similar to the “property rule” applied to the criminal cases in the western legal system.