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...

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Bibliographic Details
Main Authors: Hoff, Karla, Stiglitz, Joseph E.
Format: Policy Research Working Paper
Language:English
Published: World Bank, Washington, DC 2012
Subjects:
Online Access:http://documents.worldbank.org/curated/en/2008/02/9048193/exiting-lawless-state
http://hdl.handle.net/10986/6589
Description
Summary: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.