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Endogenous Enforcement Institutions

Author

Listed:
  • Gani Aldashev
  • Giorgio Zanarone

Abstract

Better legal institutions favor economic development, but only in States withsufficiently constrained executive power. We document this novel pattern acrossdeveloping countries, and build a simple model that illustrates how power, and theinstitutions that constrain or complement it, may affect development. We show that thereis a tradeoff between the two facets of power—enforcement and expropriation. As aruler’s power grows, his temptation not to enforce diminishes while the temptation toexpropriate grows. As a consequence, private enforcement optimally evolves into Stateenforcement, and legal institutions, which relax the ruler’s incentive constraint onenforcement, lose economic importance vis-à-vis political institutions, which limit theexecutive’s ability to expropriate. Our results are consistent with the observed crosscountrypatterns, as well as with historical evidence on the transition from the “LawMerchant” private enforcement system to the State.

Suggested Citation

  • Gani Aldashev & Giorgio Zanarone, 2015. "Endogenous Enforcement Institutions," Working Papers ECARES 2015-38, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/219734
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    References listed on IDEAS

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    More about this item

    Keywords

    coercive power; expropriation; enforcement; state;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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