Exiting a Lawless State

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.

Bibliographic Details

Main Authors:	Hoff, Karla, Stiglitz, Joseph E.
Language:	English
Published:	World Bank, Washington, DC 2008-02
Subjects:	ABUSE, ABUSE OF POWER, AGENCY PROBLEMS, ANTICORRUPTION, ANTICORRUPTION CAMPAIGNS, ASSASSINATION, ASSET STRIPPING, ASSET VALUES, ASSETS, AUTHORITARIAN RULE, AUTHORITARIANISM, AUTHORITY, BENEFICIARIES, BRIBE, BUSINESSMEN, CAPITAL INFLOWS, CITIZENS, CLAIMANT, COLLAPSE, COLONIAL COUNTRIES, COMMERCIAL LAW, COMMON PROPERTY, COMMUNISM, COMMUNIST, COMMUNIST PARTY, COMPENSATION, CONSTITUENCIES, CONSTITUENCY, CORPORATE GOVERNANCE, CORPORATE GOVERNANCE MECHANISMS, CORRUPTION, COURT, COURT DECISION, CREDIT RATIONING, CRIMINAL, CRONIES, DEMOCRACY, DEMOCRATIC GOVERNANCE, DEPENDENT, DEVELOPMENT ECONOMICS, DICTATORSHIP, EAST EUROPEAN, ECONOMIC GROWTH, ECONOMIC HISTORIANS, ECONOMIC REFORM, ECONOMIC REFORMS, ECONOMIC THEORY, ECONOMICS, EFFICIENT OUTCOMES, ELECTED OFFICIALS, EMPLOYMENT, ENTERPRISE RESTRUCTURING, EXTERNALITIES, FINANCIAL PROBLEMS, FISCAL COSTS, FREE MARKET, GANGS, GOVERNMENT POLICIES, GOVERNMENT SPENDING, HISTORIANS, ILLEGITIMATE CHILDREN, INCOME, INEQUALITY, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL ENVIRONMENT, INSTITUTIONAL FOUNDATIONS, INSTITUTIONAL REFORM, INTEREST RATE, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL FLOWS, INVESTIGATION, INVESTIGATORS, JUSTICE, LABOR ADJUSTMENT COSTS, LAW ENFORCEMENT, LAWS, LEADERSHIP, LEGAL REFORM, LEGAL SYSTEM, LEGALITY, LEGITIMACY, LOBBYING, MARKET ECONOMY, MEDIA, MINISTER, MONETARY POLICY, MULTIPLE EQUILIBRIA, NATIONAL POLICIES, NATIONALIZATION, OPPORTUNISTIC BEHAVIOR, PAYOFF, PAYOFFS, POLITICAL CONSENSUS, POLITICAL CORRUPTION, POLITICAL ECONOMY, POLITICAL INSTITUTIONS, POLITICAL RISKS, POLITICIANS, POSSESSION, PRINCIPAL ASSETS, PRIVATE OWNERSHIP, PRIVATIZATION, PROPERTY RIGHTS, PROSECUTION, PROTECTION OF PROPERTY, PUBLIC OFFICIALS, PUBLIC SECTOR, PUBLIC SPENDING, RECAPTURE OF ASSETS, RENTS, REVOLUTION, RULE OF LAW, SECURITIES LAW, SOCIAL COST, SOCIAL WELFARE, STATE ASSETS, STATE ENTERPRISES, STATE INSTITUTIONS, STATE OWNERSHIP, STATE POWER, THEFT, TIGHT MONETARY POLICY, TRANSITION ECONOMIES, TRANSITION ECONOMY, VICTIMS, VOTING, WILL, WORLD POLITICS,
Online Access:	http://documents.worldbank.org/curated/en/2008/02/9048193/exiting-lawless-state https://hdl.handle.net/10986/6589
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