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Exiting a Lawless State

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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.

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:wly:econjl:v:118:y:2008:i:531:p:1474-1497
    DOI: 10.1111/j.1468-0297.2008.02177.x
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    Cited by:

    1. Roe Mark J., 2012. "Capital Markets and Financial Politics: Preferences and Institutions," Capitalism and Society, De Gruyter, vol. 7(1), pages 1-40, November.
    2. Danne, Christian, 2009. "Commitment devices, opportunity windows, and institution building in Central Asia," MPRA Paper 16597, University Library of Munich, Germany.
    3. Stiglitz, Joseph E., 2019. "Addressing climate change through price and non-price interventions," European Economic Review, Elsevier, vol. 119(C), pages 594-612.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    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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