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Law enforcement and transition

  • Roland, Gerard
  • Verdier, Thierry

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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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 47 (2003)
Issue (Month): 4 (August)
Pages: 669-685

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Handle: RePEc:eee:eecrev:v:47:y:2003:i:4:p:669-685
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  1. Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers 609, Yale - Economic Growth Center.
  2. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
  3. Roland, G. & Verdier, T., 1997. "Transition and the Output Fall," DELTA Working Papers 97-09, DELTA (Ecole normale supérieure).
  4. Bai, Chong-En & Li, David Daokui & Qian, Yingyi & Wang, Yijiang, 1999. "Anonymous Banking and Financial Repression: How Does China's Reform Limit Government Predation without Reducing Its Revenue?," CEPR Discussion Papers 2221, C.E.P.R. Discussion Papers.
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  6. Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1997. "Pareto-Improving Economic Reforms through Dual-Track Liberalization," CEPR Discussion Papers 1595, C.E.P.R. Discussion Papers.
  7. 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.
  8. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," NBER Working Papers 8852, National Bureau of Economic Research, Inc.
  9. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers 2105, C.E.P.R. Discussion Papers.
  10. Berkowitz, Daniel & Li, Wei, 2000. "Tax rights in transition economies: a tragedy of the commons?," Journal of Public Economics, Elsevier, vol. 76(3), pages 369-397, June.
  11. 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.
  12. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January.
  13. Sicular, Terry, 1988. "Plan and Market in China's Agricultural Commerce," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 283-307, April.
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