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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

Author

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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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    1. Roland, Gerard & Verdier, Thierry, 2003. "Law enforcement and transition," European Economic Review, Elsevier, vol. 47(4), pages 669-685, August.
    2. Kolodko, Grzegorz W., 2000. "From Shock to Therapy: The Political Economy of Postsocialist Transformation," OUP Catalogue, Oxford University Press, number 9780198297437.
    3. Karla Hoff & Joseph E. Stiglitz, 2004. "After the Big Bang? Obstacles to the Emergence of the Rule of Law in Post-Communist Societies," American Economic Review, American Economic Association, vol. 94(3), pages 753-763, June.
    4. Jean-Jacques Laffont & David Martimort, 1999. "Separation of Regulators Against Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 232-262, Summer.
    5. Haltiwanger, John & Waldman, Michael, 1991. "Responders versus Non-responders: A New Perspective on Heterogeneity," Economic Journal, Royal Economic Society, vol. 101(408), pages 1085-1102, September.
    6. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
    7. Acemoglu, Daron, 1995. "Reward structures and the allocation of talent," European Economic Review, Elsevier, vol. 39(1), pages 17-33, January.
    8. Alexander Dyck & Luigi Zingales, 2002. "The Corporate Governance Role of the Media," NBER Working Papers 9309, National Bureau of Economic Research, Inc.
    9. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-414, May.
    10. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-319, March.
    11. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    12. repec:hrv:faseco:30728045 is not listed on IDEAS
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    Citations

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    Cited by:

    1. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," ESE Discussion Papers 147, Edinburgh School of Economics, University of Edinburgh.
    2. 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.
    3. 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.
    4. Bart Taub & Rui Zhao, 2009. "Enclosure," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 377-393, April.
    5. Bruno, Randolph Luca, 2008. "Rule of Law, Institutional Quality and Information," IZA Discussion Papers 3497, Institute for the Study of Labor (IZA).
    6. 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.
    7. 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.
    8. 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.
    9. repec:dau:papers:123456789/11683 is not listed on IDEAS
    10. 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.

    More about this item

    Keywords

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

    JEL classification:

    • K0 - Law and Economics - - General

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