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Exiting a Lawless State

Author

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  • Karla Hoff
  • Joseph E. Stiglitz

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 article looks more carefully at the dynamics of transition from a non-rule-of-law state. The article 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. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.

Suggested Citation

  • Karla Hoff & Joseph E. Stiglitz, 2008. "Exiting a Lawless State," Economic Journal, Royal Economic Society, vol. 118(531), pages 1474-1497, August.
    • Handle: RePEc:ecj:econjl:v:118:y:2008:i:531:p:1474-1497
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    Cited by:

    1. 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.
    2. Roe Mark J., 2012. "Capital Markets and Financial Politics: Preferences and Institutions," Capitalism and Society, De Gruyter, vol. 7(1), pages 1-40, November.
    3. 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.
    4. Danne, Christian, 2009. "Commitment devices, opportunity windows, and institution building in Central Asia," MPRA Paper 16597, University Library of Munich, Germany.
    5. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
    6. Stiglitz, Joseph E., 2019. "Addressing climate change through price and non-price interventions," European Economic Review, Elsevier, vol. 119(C), pages 594-612.
    7. Bruno, Randolph Luca, 2019. "Tax enforcement, tax compliance and tax morale in transition economies: A theoretical model," European Journal of Political Economy, Elsevier, vol. 56(C), pages 193-211.
    8. Koman, Matjaž & Lakićević, Milan & Prašnikar, Janez & Svejnar, Jan, 2015. "Asset stripping and firm survival in mass privatization: Testing the Hoff-Stiglitz and Campos-Giovannoni models in Montenegro," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 274-289.
    9. Kaushik Basu, 2016. "Beyond the Invisible Hand: Groundwork for a New Economics," Economics Books, Princeton University Press, edition 1, number 9299.

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