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Law Enforcement and Transition

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  • Gerard Roland
  • Thierry Verdier

Abstract

We present a simple model to analyze law enforcement problems in transition economies. Law enforcement implies coordination problems and multiplicity of equilibria due to a law abidnce and a fiscal externality. We analyze two institutional mechanisms for solving the coordination problem. A first mechanism is what we call "dualism", follows the scenario of Chinese transition where the government keeps direct control over economic resources and where a liberalized non state sector follows market rules. The second mechanism we put forward is accession to the European Union. We show that accession to the European Union, even without external borrowing, provides a mechanism to eliminate the "bad" equilibrium, provided the "accesing" country is small enough relative to the European Union. Interestingly, we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 262.

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Length: pages
Date of creation: 01 May 1999
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Handle: RePEc:wdi:papers:1999-262

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Keywords: law enforcement; government collapse; mafia; EU accession; dual track liberalization;

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  1. Lawrence J. Lau & Yingyi Qian & Gerard Roland, . "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Working Papers, Stanford University, Department of Economics 99010, Stanford University, Department of Economics.
  2. Timothy Frye & Ekaterina Zhuravskaya, 2000. "Rackets, Regulation and the Rule of Law," Working Papers w0002, Center for Economic and Financial Research (CEFIR).
  3. Gerard Roland & Thierry Verdier, 1997. "Transition and the Output Fall," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 37, William Davidson Institute at the University of Michigan.
  4. Lawrence J. Lau & Yingyi Qian & Gerard Roland, . "Pareto-Improving Economic Reforms through Dual-Track Liberalization," Working Papers, Stanford University, Department of Economics 97007, Stanford University, Department of Economics.
  5. Chong-En Bai & David D. Li & Yingyi Qian & Yijiang Wang, 1999. "Anonymous Banking and Financial Repression: How Does China's Reform Limit Government Predation without Reducing Its Revenue?," Working Papers, Stanford University, Department of Economics 99014, Stanford University, Department of Economics.
  6. Gordon, Roger H. & Bai, Chong-En & Li, David D., 1999. "Efficiency losses from tax distortions vs. government control," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 1095-1103, April.
  7. Berkowitz, Daniel & Li, Wei, 2000. "Tax rights in transition economies: a tragedy of the commons?," Journal of Public Economics, Elsevier, Elsevier, vol. 76(3), pages 369-397, June.
  8. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2105, C.E.P.R. Discussion Papers.
  9. Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers, Yale - Economic Growth Center 609, Yale - Economic Growth Center.
  10. Sicular, Terry, 1988. "Plan and Market in China's Agricultural Commerce," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 283-307, April.
  11. Andvig, J.C. & Ove Moene, K., 1988. "How Corruption May Corrupt," Memorandum, Oslo University, Department of Economics 20/1988, Oslo University, Department of Economics.
  12. Byrd, William A., 1989. "Plan and market in the Chinese economy: A simple general equilibrium model," Journal of Comparative Economics, Elsevier, vol. 13(2), pages 177-204, June.
  13. Byrd, William A., 1987. "The impact of the two-tier plan/market system in chinese industry," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 295-308, September.
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