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Rackets, Regulation and the Rule of Law

Author

Listed:
  • Timothy Frye

    (Department of Political Science, Ohio State University)

  • Ekaterina Zhuravskaya

    (Center for Economic and Financial Research and CEPR)

Abstract

Governments that levy predatory regulation and provide few weak legal institutions draw businesses into the unofficial economy and compel them to hire private protection organizations. Based on a survey of shopkeepers in three cities in Russia, we find that retail shops face very high levels of predatory regulation and have frequent contacts with private protection rackets. In addition, we show that higher levels of regulation are associated with weaker legal institutions and a higher probability of contact with a private protection organization. We also find that shopkeepers view private protection organizations primarily as a substitute for state-provided police protection and state-provided courts. These results emphasize the importance of public sector reform as a component of economic transition.

Suggested Citation

  • Timothy Frye & Ekaterina Zhuravskaya, 2000. "Rackets, Regulation and the Rule of Law," Working Papers w0002, New Economic School (NES).
  • Handle: RePEc:abo:neswpt:w0002
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP2.pdf
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    References listed on IDEAS

    as
    1. Hay, Jonathan R & Shleifer, Andrei, 1998. "Private Enforcement of Public Laws: A Theory of Legal Reform," American Economic Review, American Economic Association, vol. 88(2), pages 398-403, May.
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    More about this item

    JEL classification:

    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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