Law Enforcement and Transition

37 Pages Posted: 8 May 2001

See all articles by Gérard Roland

Gérard Roland

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR)

Thierry Verdier

Paris School of Economics (PSE); Delta - Ecole Normale Superieure (ENS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2000

Abstract

We present a simple model to analyse law enforcement problems in transition economies. Law enforcement implies coordination problems and multiplicity of equilibria due to a law abidance and a fiscal externality. We analyse two institutional mechanisms for solving the coordination problem. A first mechanism, which we call 'dualism', follows the scenario of Chinese transition where the government keeps direct control over economic resources and where a liberalized non-state sector follows market rules. The second mechanism we put forward is accession to the European Union. We show that accession to the European Union, even without external borrowing, provides a mechanism to eliminate the 'bad' equilibrium, provided the 'accessing' country is small enough relative to the European Union. Interestingly, we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession

Keywords: Accession, coordination problems, dual track, law enforcement

JEL Classification: H40, H50, K42, P51

Suggested Citation

Roland, Gérard and Verdier, Thierry, Law Enforcement and Transition (July 2000). CEPR Discussion Paper No 2501. Available at SSRN: https://ssrn.com/abstract=263543

Gérard Roland (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-4321 (Phone)
510-642-6615 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Delta - Ecole Normale Superieure (ENS) ( email )

48, Boulevard Jourdan
75014 Paris
France
+33 1 4313 6308 (Phone)
+33 1 4313 6310 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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