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Exiting a lawless state

Author Info

Listed author(s):
  • Hoff, Karla
  • Stiglitz, Joseph E.

Abstract

An earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset-stripping, and the prevalence of asset-stripping led to the absence of a demand for the rule of law, highlighting a coordination failure. This paper looks more carefully at the dynamics of transition from a non-rule-of-law state. The paper identifies a commitment problem as the critical feature inhibiting the transition: the inability, under a rule of law, to forgive theft. This can lead to the perpetuation of the non-rule-of-law state, even when it might seem that the alternative is Pareto-improving.

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File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/03/03/000158349_20080303093321/Rendered/PDF/wps4520.pdf
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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4520.

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Date of creation: 01 Feb 2008
Handle: RePEc:wbk:wbrwps:4520
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Keywords: Public Sector Corruption&Anticorruption Measures; National Governance; Labor Policies; Gender and Law; Bankruptcy and Resolution of Financial Distress;

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  1. Smith, Adam, 1759. "The Theory of Moral Sentiments," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1759.
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Cited by:

  1. Knyazeva, Anzhela & Knyazeva, Diana & Stiglitz, Joseph E., 2013. "Ownership change, institutional development and performance," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2605-2627.
  2. Çule, Monika & Fulton, Murray, 2009. "Business culture and tax evasion: Why corruption and the unofficial economy can persist," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 811-822, December.
  3. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
  4. Koman, Matjaž & Lakićević, Milan & Prašnikar, Janez & Svejnar, Jan, 2015. "Asset stripping and firm survival in mass privatization: Testing the Hoff-Stiglitz and Campos-Giovannoni models in Montenegro," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 274-289.

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