Wealth-destroying private property rights

•We develop a theory of wealth-destroying private property rights.•When property decision makers are residual claimants, they privatize assets only when doing so creates social wealth.•When decision makers are not residual claimants, they may privatize assets even when doing so destroys social wealth.•Land privatization in Kajiado, Kenya illustrates our theory.•In Kajiado, land privatizers were not residual claimants, and land privatization destroyed social wealth. According to conventional wisdom, privatizing the commons will create wealth. Yet in cases found throughout the developing world, privatizing the commons has destroyed wealth. To explain this phenomenon, we develop a theory of wealth-destroying private property rights. Privatization’s effect on social wealth depends on whether privatizing an asset confers net gains or imposes net losses on society. The decision to privatize, however, depends on whether privatizing an asset confers net gains or imposes net losses on property decision makers. When decision makers are residual claimants, these effects move in tandem; privatization occurs only if it creates social wealth. When decision makers are not residual claimants, these effects may diverge; privatization occurs if it benefits decision makers personally even if privatization destroys social wealth. We apply our theory to understand wealth-destroying land privatization in Kajiado, Kenya.