Enforcement of Property Rights during the Russian Transition: Problems and Some Approaches to a New Liberal Solution

The paper examines economic inefficiency stemming from the replacement of the public property rights enforcement mechanism by private ("mafia-type") enforcement in the transitional economy of Russia. It is shown that private enforcement leads to the entrenchment of small-scale inefficient monopolies. The state becomes a vehicle for rent seeking and free loading. A simple model is employed to argue that a naive laissez-faire approach to the problem is not likely to work. The paper then argues that any attempt at a once-and-for-all institutional solution relying on coordination by a benevolent government is also basically impossible. A step-by-step incentive-based approach is advocated; in particular, the paper proposes the nonconventional libertarian idea of establishing a commercialized government property protection service, and it discusses some of its theoretical and practical aspects. The role of the devolution and competition of power is also examined. Copyright 1999 by the University of Chicago.