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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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  • Hoff, Karla
  • Stiglitz, Joseph E.

Abstract

How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors 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 regimetoward rule of law, and that the number of agents with control rights over assets is large. They 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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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3779.

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Date of creation: 01 Dec 2005
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Handle: RePEc:wbk:wbrwps:3779

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Keywords: Legal Products; Economic Theory&Research; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Governance Indicators;

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  1. 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.
  2. 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.
  3. John Haltiwanger, 1987. "Responders Versus Nonresponders: A New Perspective on Heterogeneity," UCLA Economics Working Papers 436, UCLA Department of Economics.
  4. Alexander Dyck & Luigi Zingales, 2002. "The Corporate Governance Role of the Media," NBER Working Papers 9309, National Bureau of Economic Research, Inc.
  5. Acemoglu, Daron, 1995. "Reward structures and the allocation of talent," European Economic Review, Elsevier, vol. 39(1), pages 17-33, January.
  6. Laffont, Jean-Jacques & Martimort, David, 1994. "Separation of Regulators against Collusive Behavior," IDEI Working Papers 44, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Kolodko, Grzegorz W., 2000. "From Shock to Therapy: The Political Economy of Postsocialist Transformation," OUP Catalogue, Oxford University Press, number 9780198297437, Octomber.
  8. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  9. Karla Hoff & Joseph E. Stiglitz, 2002. "After the Big Bang? Obstacles to the emergence of the rule of law in post-communist societies," Discussion Papers 0203-03, Columbia University, Department of Economics.
  10. Roland, Gerard & Verdier, Thierry, 2003. "Law enforcement and transition," European Economic Review, Elsevier, vol. 47(4), pages 669-685, August.
  11. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March.
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Cited by:
  1. Bruno, Randolph Luca, 2008. "Rule of Law, Institutional Quality and Information," IZA Discussion Papers 3497, Institute for the Study of Labor (IZA).
  2. Enrico Colombatto, 2007. "It was the rule of law. Will it be the rule of judges?," ICER Working Papers 41-2007, ICER - International Centre for Economic Research.
  3. Raynouard, Arnaud & Kerhuel, Anne-Julie, 2011. "Measuring the law: Sécurité juridique as a watermark," Economics Papers from University Paris Dauphine 123456789/11683, Paris Dauphine University.
  4. Davis, Junior, 2006. "Learning from local economic development experiences: Observations on Integrated Development Programmes of the Free State, Republic of South Africa," MPRA Paper 26045, University Library of Munich, Germany.
  5. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, vol. 90(1), pages 69-84, September.
  6. 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.
  7. Stefano Porcelli, 2009. "Civilian Tradition and the Chinese Company Law," Transition Studies Review, Springer, vol. 16(2), pages 438-449, June.

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