2004年-世界发展银行全球_The_Transition_from_Communism__A____________Diagrammatic_Exposition_of_Obstacles_to_the_Demand_for_the____________Rule_of_Law_23页_155kb

Summary of "The Transition from Communism: A Diagrammatic Exposition of Obstacles to the Demand for the Rule of Law"

Core Content

This paper, authored by Karla Hoff and Joseph E. Stiglitz, explores the challenges in establishing the rule of law in transition economies, particularly focusing on the case of Russia following the collapse of communism and mass privatization in the early 1990s. The central argument is that the demand for the rule of law is not automatically generated by economic reform, and that mass privatization may lead to asset stripping rather than the development of a strong political constituency for legal institutions.

Main Points

• Interdependence of Economic and Political Choices: Individuals' economic and political decisions are interdependent. Their actions to build value or strip assets influence their political preferences, and vice versa.

• Asset Stripping and Rule of Law: In the absence of the rule of law, some individuals have an incentive to strip assets quickly rather than waiting for the establishment of property rights protection. This behavior can undermine the demand for the rule of law.

• Public Good Nature of Votes: The political environment is treated as a public good, where individuals focus on their own interests when influencing the legal regime. This leads to two types of distortions: spillover effects and intertemporal incentive effects.

• Role of Capital Market Imperfections: Capital market imperfections can lead to inefficient behaviors, such as asset stripping, which in turn reduce the likelihood of the rule of law being established.

• Dynamic Framework: The paper extends the static model to a dynamic setting, showing that even forward-looking individuals may not support the rule of law if they expect it to constrain their ability to strip assets.

• Macroeconomic Policy and Rule of Law: Macroeconomic policies, such as interest rate and public spending decisions, can influence the demand for the rule of law. A too stringent macroeconomic policy may reduce the returns to building value relative to stripping, thereby weakening the demand for the rule of law.

Key Information

• Mass Privatization in Russia: The "Big Bang" privatization in 1992-94 led to a "wild market outside the law," characterized by significant asset stripping and capital flight.

• Empirical Observations: Despite the passage of numerous laws, a strong political constituency for the rule of law did not emerge in Russia and many other transition economies.

• Model Assumptions:

  • Individuals have control rights over assets.
  • The rule of law increases the return to building value.
  • The establishment of the rule of law is determined by majority voting.
  • The distribution of stripping ability is modeled as a normal distribution.

• Equilibrium Analysis:

  • A stable equilibrium exists where the expected payoff to building value equals the payoff to stripping.
  • The model identifies multiple equilibria, including "good" and "bad" equilibria, and an unstable equilibrium.
  • The Soviet legacy, including the lack of civil society institutions, can depress the probability of establishing the rule of law and enhance the ability to strip assets.

• Critical Interest Rate: The rule of law will be established only if the interest rate is below a critical level, defined as the "rule-of-law constraint."

Conclusion

The paper challenges the functionalist view that economic reform will naturally lead to a demand for the rule of law. It argues that the interplay between economic and political choices, mediated by spillovers and imperfect capital markets, can lead to an equilibrium where the rule of law is not demanded. The model highlights the importance of considering macroeconomic policy in the context of institutional development, as these policies can significantly influence the feasibility of establishing a legal regime that supports property rights and economic growth.