Emerald Management Review:
Exiting a lawless state

Abstract:

Purpose - To question the utility of the rule of law, in countries where property is expropriated.

Design/methodology/approach - Assumes applying the rule of law raises incentives to produce and therefore universal welfare; and individuals are forward-looking. Develops the model of Hoff and Stiglitz (2004) to introduce a simple dynamic Markov model where the transition to the rule of law carries high costs. Adds the barriers to institutional reform, then the order and timing of reforms and of macroeconomic policy. Illustrates by the process in Russia.

Findings - Finds that many may lose from applying the rule of law if it excludes prior asset-stripping activity, and if there is a lag in implementation. Shows that some recapture of stolen property is part of the implementation of the rule of law in the long run, for example by nationalizing stolen wealth. Indicates that myths can develop to undermine property rights if privatization is no longer seen as increasing welfare.

Research limitations/implications - Proposes further study of the evolution of inequality, the development of beliefs, and international influences. Suggests extending to failed states.

Originality/value - Presents a highly intelligent analysis of post-Communist Russian economic redistribution of assets.

Keywords:

Article Type:

Research paper

Reference:

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