The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, what would we expect to happen to the growth rate in Turan?
A) It will fall temporarily, but will return to where it was when the new owners learn how to farm.
B) It will increase because the total amount of human capital in the country will increase as the new owners learn how to farm.
C) It will fall and remain lower for a long time because other farmers may expect their farms to be seized as well, and therefore they do not improve their farms.
D) It will increase because friends can better cooperate with each other, avoiding wasteful competition.

Question

Quizplus · Accepted Answer

The arbitrary seizures of farms will discourage farmers from investing in their farms, as they may expect their property to be seized as well. This will lead to a fall in growth rate, and it may persist in the long run as farmers may choose not to invest in their farms due to the risk of expropriation. The fact that the new owners don't know much about farming will also exacerbate the problem.

The Dictator of Turan Has Recently Begun to Arbitrarily Seize