Hoff, KarlaStiglitz, Joseph E.2012-05-292012-05-292008-02https://hdl.handle.net/10986/6589An 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.CC BY 3.0 IGOABUSEABUSE OF POWERAGENCY PROBLEMSANTICORRUPTIONANTICORRUPTION CAMPAIGNSASSASSINATIONASSET STRIPPINGASSET VALUESASSETSAUTHORITARIAN RULEAUTHORITARIANISMAUTHORITYBENEFICIARIESBRIBEBUSINESSMENCAPITAL INFLOWSCITIZENSCLAIMANTCOLLAPSECOLONIAL COUNTRIESCOMMERCIAL LAWCOMMON PROPERTYCOMMUNISMCOMMUNISTCOMMUNIST PARTYCOMPENSATIONCONSTITUENCIESCONSTITUENCYCORPORATE GOVERNANCECORPORATE GOVERNANCE MECHANISMSCORRUPTIONCOURTCOURT DECISIONCREDIT RATIONINGCRIMINALCRONIESDEMOCRACYDEMOCRATIC GOVERNANCEDEPENDENTDEVELOPMENT ECONOMICSDICTATORSHIPEAST EUROPEANECONOMIC GROWTHECONOMIC HISTORIANSECONOMIC REFORMECONOMIC REFORMSECONOMIC THEORYECONOMICSEFFICIENT OUTCOMESELECTED OFFICIALSEMPLOYMENTENTERPRISE RESTRUCTURINGEXTERNALITIESFINANCIAL PROBLEMSFISCAL COSTSFREE MARKETGANGSGOVERNMENT POLICIESGOVERNMENT SPENDINGHISTORIANSILLEGITIMATE CHILDRENINCOMEINEQUALITYINSTITUTIONAL DEVELOPMENTINSTITUTIONAL ENVIRONMENTINSTITUTIONAL FOUNDATIONSINSTITUTIONAL REFORMINTEREST RATEINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINVESTIGATIONINVESTIGATORSJUSTICELABOR ADJUSTMENT COSTSLAW ENFORCEMENTLAWSLEADERSHIPLEGAL REFORMLEGAL SYSTEMLEGALITYLEGITIMACYLOBBYINGMARKET ECONOMYMEDIAMINISTERMONETARY POLICYMULTIPLE EQUILIBRIANATIONAL POLICIESNATIONALIZATIONOPPORTUNISTIC BEHAVIORPAYOFFPAYOFFSPOLITICAL CONSENSUSPOLITICAL CORRUPTIONPOLITICAL ECONOMYPOLITICAL INSTITUTIONSPOLITICAL RISKSPOLITICIANSPOSSESSIONPRINCIPAL ASSETSPRIVATE OWNERSHIPPRIVATIZATIONPROPERTY RIGHTSPROSECUTIONPROTECTION OF PROPERTYPUBLIC OFFICIALSPUBLIC SECTORPUBLIC SPENDINGRECAPTURE OF ASSETSRENTSREVOLUTIONRULE OF LAWSECURITIES LAWSOCIAL COSTSOCIAL WELFARESTATE ASSETSSTATE ENTERPRISESSTATE INSTITUTIONSSTATE OWNERSHIPSTATE POWERTHEFTTIGHT MONETARY POLICYTRANSITION ECONOMIESTRANSITION ECONOMYVICTIMSVOTINGWILLWORLD POLITICSWorld Bank10.1596/1813-9450-4520