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Rackets, Regulation and the Rule of Law

  • Timothy Frye

    (Department of Political Science, Ohio State University)

  • Ekaterina Zhuravskaya

    ()

    (Center for Economic and Financial Research and CEPR)

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.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0002.

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Length: 40 pages
Date of creation: Jan 2000
Date of revision:
Handle: RePEc:cfr:cefirw:w0002
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  1. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  2. Daniel Berkowitz & David DeJong, 1998. "Russia's Internal Border," William Davidson Institute Working Papers Series 189, William Davidson Institute at the University of Michigan.
  3. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-58, May.
  4. 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.
  5. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  6. Alston, Lee J & Ferrie, Joseph P, 1993. "Paternalism in Agricultural Labor Contracts in the U.S. South: Implications for the Growth of the Welfare State," American Economic Review, American Economic Association, vol. 83(4), pages 852-76, September.
  7. Zhuravskaya Ekatherina, 2000. "Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style," EERC Working Paper Series 99-15e, EERC Research Network, Russia and CIS.
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