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The Creation of the Rule of Law and the Legitimacy of Property Rights: The Political and Economic Consequences of a Corrupt Privatization

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Karla Hoff
Joseph E. Stiglitz

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Abstract

How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? We investigate the demand for the rule of law in post-Communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime towards rule of law, and that the number of agents with control rights over assets is large. We show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11772.

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Date of creation: Nov 2005
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Handle: RePEc:nbr:nberwo:11772

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K0 - Law and Economics - - General

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  2. Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Acemoglu, Daron, 1995. "Reward structures and the allocation of talent," European Economic Review, Elsevier, vol. 39(1), pages 17-33, January. [Downloadable!] (restricted)
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  4. Dyck, Alexander & Zingales, Luigi, 2002. "The Corporate Governance Role of the Media," CEPR Discussion Papers 3630, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
  6. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-14, May. [Downloadable!] (restricted)
  7. Karla Hoff & Joseph E. Stiglitz, 2004. "After the Big Bang? Obstacles to the Emergence of the Rule of Law in Post-Communist Societies," American Economic Review, American Economic Association, vol. 94(3), pages 753-763, June. [Downloadable!]
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  8. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March. [Downloadable!] (restricted)
  9. Gerard Roland & Thierry Verdier, 1999. "Law Enforcement and Transition," William Davidson Institute Working Papers Series 262, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  10. Haltiwanger, John & Waldman, Michael, 1991. "Responders versus Non-responders: A New Perspective on Heterogeneity," Economic Journal, Royal Economic Society, vol. 101(408), pages 1085-1102, September. [Downloadable!] (restricted)
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  1. Bruno, Randolph Luca, 2008. "Rule of Law, Institutional Quality and Information," IZA Discussion Papers 3497, Institute for the Study of Labor (IZA). [Downloadable!]
  2. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," ESE Discussion Papers 147, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  3. R. L. Bruno, 2008. "Rule of Law, Institutional Quality and Information," Working Papers 634, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  4. Stefano Porcelli, 2009. "Civilian Tradition and the Chinese Company Law," Transition Studies Review, Springer, vol. 16(2), pages 438-449, June. [Downloadable!] (restricted)
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