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Exiting a lawless state

  • Hoff, Karla
  • Stiglitz, Joseph E.

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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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
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Handle: RePEc:wbk:wbrwps:4520
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  1. Gerard Roland & Thierry Verdier, 1999. "Law Enforcement and Transition," William Davidson Institute Working Papers Series 262, William Davidson Institute at the University of Michigan.
  2. Konstantin Sonin, 2003. "Why the Rich May Favor Poor Protection of Property Rights," Working Papers w0022, Center for Economic and Financial Research (CEFIR).
  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.
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  7. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
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  19. K. Basu, 1997. "On Misunderstanding Government: an Analysis of the Art of Policy Advice," Economics and Politics, Wiley Blackwell, vol. 9(3), pages 231-250, November.
  20. Denisova, Irina & Eller, Markus & Frye, Timothy & Zhuravskaya, Ekaterina, 2007. "Who Wants to Revise Privatization and Why? Evidence from 28 Post-Communist Countries," CEPR Discussion Papers 6603, C.E.P.R. Discussion Papers.
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