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Exiting a lawless state

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  • Hoff, Karla
  • Stiglitz, Joseph E.

Abstract

An earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset-stripping, and the prevalence of asset-stripping led to the absence of a demand for the rule of law, highlighting a coordination failure. This paper looks more carefully at the dynamics of transition from a non-rule-of-law state. The paper identifies a commitment problem as the critical feature inhibiting the transition: the inability, under a rule of law, to forgive theft. This can lead to the perpetuation of the non-rule-of-law state, even when it might seem that the alternative is Pareto-improving.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4520.

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Date of creation: 01 Feb 2008
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Handle: RePEc:wbk:wbrwps:4520

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Keywords: Public Sector Corruption&Anticorruption Measures; National Governance; Labor Policies; Gender and Law; Bankruptcy and Resolution of Financial Distress;

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  10. 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.
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  16. Denisova, Irina & Eller, Markus & Frye, Timothy & Zhuravskaya, Ekaterina, 2007. "Who Wants to Revise Privatization and Why? Evidence from 28 Post-Communist Countries," CEPR Discussion Papers 6603, C.E.P.R. Discussion Papers.
  17. Varese, Federico, 2001. "The Russian Mafia: Private Protection in a New Market Economy," OUP Catalogue, Oxford University Press, number 9780198297369, September.
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  24. repec:cup:cbooks:9780521855266 is not listed on IDEAS
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Citations

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Cited by:
  1. Çule, Monika & Fulton, Murray, 2009. "Business culture and tax evasion: Why corruption and the unofficial economy can persist," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 811-822, December.
  2. Knyazeva, Anzhela & Knyazeva, Diana & Stiglitz, Joseph E., 2013. "Ownership change, institutional development and performance," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2605-2627.

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