The Creation of the Rule of Law and the Legitimacy of Property Rights: The Political and Economic Consequences of a Corrupt Privatization

Karla Hoff () and Joseph Stiglitz

No 11772, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? We investigate the demand for the rule of law in post-Communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime towards rule of law, and that the number of agents with control rights over assets is large. We show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.

JEL-codes: K0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law, nep-pol and nep-reg
Date: 2005-11
Note: EFG PE
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Working Paper: The creation of the rule of law and the legitimacy of property rights: the political and economic consequences of a corrupt privatization (2005)
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