Exiting a lawless state

Karla Hoff () and Joseph Stiglitz

No 4520, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Public Sector Corruption&Anticorruption Measures; National Governance; Labor Policies; Gender and Law; Bankruptcy and Resolution of Financial Distress (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law, nep-pbe, nep-pol and nep-reg
Date: 2008-02-01

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Journal Article: Exiting a Lawless State (2008)
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