The Transition from Communism: A Diagrammatic Exposition of Obstacles to the Demand for the Rule of Law
In an earlier paper, the authors presented a mathematical exposition of a theory that demonstrated that mass privatization without institutions to limit asset-stripping may not lead to a demand for the rule of law ["After the Big Bang? Obstacl...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/06/4990641/transition-communism-diagrammatic-exposition-obstacles-demand-rule-law http://hdl.handle.net/10986/14173 |
| Summary: | In an earlier paper, the authors
presented a mathematical exposition of a theory that
demonstrated that mass privatization without institutions to
limit asset-stripping may not lead to a demand for the rule
of law ["After the Big Bang? Obstacles to the Emergence
of the Rule of Law in Post-Communist Societies,"
American Economic Review 94(3), June 2004, pages 753-63].
This report makes the same argument in terms of simple
diagrams. The central idea is that economic actions (to
build value or strip assets) and political positions of
individuals are interdependent. "Big bang"
privatization may give individuals an interest in taking
what they can quickly, rather than waiting for the
establishment of property rights protection that would
permit them to build more valuable assets. Asset stripping
gives some of these individuals an interest in prolonging
the absence of the rule of law so that they can enjoy the
fruits of stripping without the constraint of government
enforcement of property rights. Each individual, in
attempting to influence society's choice of the
environment, focuses on the impact on himself, not the
impact on others. In choosing their economic actions,
individuals ignore the effect of their economic decisions on
how they themselves vote, how other people believe the
system will evolve, and thus how others invest and vote.
Thus, two distortions of individual behavior are associated
with the public good nature of votes. The authors use this
framework to make one further point. Because of the
interdependence between individuals' economic and
political choices, demand for and opposition to the rule of
law cannot be separated from macroeconomic policy. A too
stringent macroeconomic policy can lower the returns to
building value relative to stripping assets and thereby
weaken the equilibrium demand for the rule of law.
Macroeconomic policies and institutional evolution are not
independent issues. |
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