Endogenous Enforcement Institutions

49 Pages Posted: 25 Jan 2012 Last revised: 17 May 2017

See all articles by Gani Aldashev

Gani Aldashev

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); University of Namur

Giorgio Zanarone

CUNEF

Date Written: March 2017

Abstract

Faster courts favor economic development in States with sufficiently constrained executive power, whereas they harm development in States where political power is relatively unconstrained. We document this novel pattern across developing countries, and build a simple model of the State as a self-enforcing social contract, which illustrates how power, and institutions that constrain or complement it, affect development. We show a trade-off between the two facets of power—enforcement and expropriation. As the ruler’s power grows, his temptation to shirk on enforcement diminishes while the temptation to expropriate grows. Consequently, private enforcement optimally evolves into State enforcement. Moreover, faster courts relax the ruler’s incentive constraint on enforcement but tighten his non-expropriation incentive constraint; thus, the effect on development depends on which incentive constraint binds in equilibrium. Our results are consistent with the observed cross-country patterns and with historical evidence on transition from the “Law Merchant” enforcement system to the State.

Keywords: Coercive power; Expropriation; Enforcement; State

JEL Classification: H11; K42; P48

Suggested Citation

Aldashev, Gani and Zanarone, Giorgio, Endogenous Enforcement Institutions (March 2017). Journal of Development Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1990583 or http://dx.doi.org/10.2139/ssrn.1990583

Gani Aldashev

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Namur ( email )

8 rempart de la vierge
Namur, 5000
Belgium

Giorgio Zanarone (Contact Author)

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://gzanarone.cunef.edu

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