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Law Enforcement and Transition

Author

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  • Gerard Roland
  • Thierry Verdier

Abstract

We present a simple model to analyze law enforcement problems in transition economies. Law enforcement implies coordination problems and multiplicity of equilibria due to a law abidnce and a fiscal externality. We analyze two institutional mechanisms for solving the coordination problem. A first mechanism is what we call "dualism", follows the scenario of Chinese transition where the government keeps direct control over economic resources and where a liberalized non state sector follows market rules. The second mechanism we put forward is accession to the European Union. We show that accession to the European Union, even without external borrowing, provides a mechanism to eliminate the "bad" equilibrium, provided the "accesing" country is small enough relative to the European Union. Interestingly, we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession.

Suggested Citation

  • Gerard Roland & Thierry Verdier, 1999. "Law Enforcement and Transition," William Davidson Institute Working Papers Series 262, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1999-262
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    References listed on IDEAS

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    5. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August.
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    More about this item

    Keywords

    law enforcement; government collapse; mafia; EU accession; dual track liberalization;

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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