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The creation of the rule of law and the legitimacy of property rights : the political and economic consequences of a corrupt privatization

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  • Hoff, Karla
  • Stiglitz, Joseph E.

Abstract

How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors investigate the demand for the rule of law in post-communist economies after privatization under the assumption that theft is possible, that those who have"stolen"assets cannot be fully protected under a change in the legal regimetoward rule of law, and that the number of agents with control rights over assets is large. They show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.

Suggested Citation

  • Hoff, Karla & Stiglitz, Joseph E., 2005. "The creation of the rule of law and the legitimacy of property rights : the political and economic consequences of a corrupt privatization," Policy Research Working Paper Series 3779, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3779
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    References listed on IDEAS

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    Cited by:

    1. Akisik, Orhan, 2020. "The impact of financial development, IFRS, and rule of LAW on foreign investments: A cross-country analysis," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 815-838.
    2. Dawid Piątek & Katarzyna Sarzec, 2009. "Państwo a dobrobyt ekonomiczny - między wolnością a przymusem," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 1-19.
    3. Giovanni Ferri & Angelo Leogrande, 2015. "Was the Crisis due to a shift from stakeholder to shareholder finance? Surveying the debate," Mo.Fi.R. Working Papers 108, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    4. Randolph Luca Bruno, 2008. "Rule of law, institutional quality and information," UCL SSEES Economics and Business working paper series 98, UCL School of Slavonic and East European Studies (SSEES).
    5. Enrico Colombatto, 2007. "It was the rule of law. Will it be the rule of judges?," ICER Working Papers 41-2007, ICER - International Centre for Economic Research.
    6. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," Edinburgh School of Economics Discussion Paper Series 147, Edinburgh School of Economics, University of Edinburgh.
    7. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, vol. 90(1), pages 69-84, September.
    8. Zhong Zhang, 2007. "Legal Deterrence: the foundation of corporate governance – evidence from China," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(5), pages 741-767, September.
    9. Bart Taub & Rui Zhao, 2009. "Enclosure," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 377-393, April.
    10. Davis, Junior, 2006. "Learning from local economic development experiences: Observations on Integrated Development Programmes of the Free State, Republic of South Africa," MPRA Paper 26045, University Library of Munich, Germany.
    11. Stefano Porcelli, 2009. "Civilian Tradition and the Chinese Company Law," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(2), pages 438-449, June.
    12. Baiashvili, Tamar & Gattini, Luca, 2020. "Impact of FDI on economic growth: The role of country income levels and institutional strength," EIB Working Papers 2020/02, European Investment Bank (EIB).
    13. repec:dau:papers:123456789/11683 is not listed on IDEAS

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    More about this item

    Keywords

    Legal Products; Economic Theory&Research; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Governance Indicators;
    All these keywords.

    JEL classification:

    • K0 - Law and Economics - - General

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