Publication: Exiting a Lawless State
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2008-02
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2012-05-29
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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.
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“Hoff, Karla; Stiglitz, Joseph E.. 2008. Exiting a Lawless State. Policy Research Working Paper; No. 4520. © World Bank. http://hdl.handle.net/10986/6589 License: CC BY 3.0 IGO.”
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