The Creation of the Rule of Law and the Legitimacy of Property Rights: The Political and Economic Consequences of a Corrupt Privatization

50 Pages Posted: 1 Jan 2006

See all articles by Karla Hoff

Karla Hoff

World Bank - Development Economics Group (DEC); World Bank - Development Research Group (DECRG)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

How 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.

Keywords: rule of law, legitimacy, privatization, corporate governance, Markov process

JEL Classification: P16, K4, O1

Suggested Citation

Hoff, Karla and Stiglitz, Joseph E., The Creation of the Rule of Law and the Legitimacy of Property Rights: The Political and Economic Consequences of a Corrupt Privatization (December 2005). World Bank Policy Research Working Paper No. 3779. Available at SSRN: https://ssrn.com/abstract=872775

Karla Hoff (Contact Author)

World Bank - Development Economics Group (DEC) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/khoff

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
376
Abstract Views
1,647
rank
67,297
PlumX Metrics