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Exiting a Lawless State

  • Karla Hoff
  • Joseph E. Stiglitz

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.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 531 (08)
Pages: 1474-1497

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:531:p:1474-1497
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