Hoff, KarlaStiglitz, Joseph E.2012-06-202012-06-202005-12https://hdl.handle.net/10986/8581How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors 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 toward rule of law, and that the number of agents with control rights over assets is large. They 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.CC BY 3.0 IGOADVERSE EFFECTSAGENCY PROBLEMSAGGREGATE DEMANDAGGREGATE SUPPLYASSETSCAPITAL FLIGHTCONSTANT RETURNS TO SCALECORPORATE GOVERNANCECORRUPT PRACTICESCORRUPTIONCREDIT RATIONINGDEMOCRACYDISCOUNTED VALUEEAST EUROPEANECONOMIC PERFORMANCEECONOMIC POWEREQUILIBRIUMEXPECTED RETURNEXPECTED RETURNSEXTERNALITIESGNPGOVERNANCE INDICATORSGROWTH PATHINCOMEINEQUALITYINSTITUTIONAL CHANGEINSTITUTIONAL REFORMINTEREST RATEJUSTICELAW INDICATORLAWSMACROECONOMIC POLICIESMACROECONOMIC POLICYMACROECONOMIC STABILIZATIONMACROECONOMIC STABILIZATION POLICYMARKET ECONOMYMONETARY POLICYNATURAL RESOURCESOLIGARCHYPAYOFFSPOLITICAL INSTITUTIONSPRIVATE PROPERTYPRODUCTIVE ASSETSPROPERTY RIGHTSPUBLIC GOODRULE OF LAWSTEALINGTRANSITION ECONOMIESTRANSITION ECONOMYWEALTHWEALTH CREATIONWorld Bank10.1596/1813-9450-3779