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Rackets, Regulation and the Rule of Law

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  • Zhuravskaya, Ekaterina
  • Frye, Timothy

Abstract

Governments that levy predatory regulation and provide few weak legal institutions draw businesses into the unofficial economy and compel them to hire private protection organizations. Based on a survey of shopkeepers in three cities in Russia, we find that retail shops face very high levels of predatory regulation and have frequent contacts with private protection rackets. In addition, we show that higher levels of regulation are associated with weaker legal institutions and a higher probability of contact with a private protection organization. We also find that shopkeepers view private protection organizations primarily as a substitute for state-provided police protection and state-provided courts. These results emphasize the importance of public sector reform as a component of economic transition.

Suggested Citation

  • Zhuravskaya, Ekaterina & Frye, Timothy, 2001. "Rackets, Regulation and the Rule of Law," CEPR Discussion Papers 2716, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2716
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    References listed on IDEAS

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    6. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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    More about this item

    Keywords

    Regulation; Transition; Government; racket;
    All these keywords.

    JEL classification:

    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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