After the Big Bang? Obstacles to the emergence of the rule of law in post-communist societies

With the collapse of communism in Eastern Europe and the Soviet Union in 1989-91, many economic reformers supported"Big Bang"privatization-the rapid transfer of state-owned enterprises to private individuals. It was hoped that Big Bang privatization would create the conditions for a demand-led evolution of legal institutions. But there was no theory to explain how this process of institutional evolution, including a legal framework for the protection of investors, would occur and, in fact, it has not yet occurred in Russia, in other former Soviet Union countries, in the Czech Republic, and elsewhere. A central reason for that, according to many scholars, is the weakness of the political demand for the rule of law. To shed light on this puzzle, the authors consider a model where the conditions for the emergence of the rule of law might be interpreted as highly favorable. Individuals with control rights over privatized assets can collectively bring about the rule of law simply by voting for it. These individuals are concerned with the wealth they can obtain from the privatized assets, and have two alternative strategies: building value and stripping assets. Building value under the rule of law yields higher benefits to a majority than stripping assets under no rule of law. But uncertainty about when the rule of law will be established may lead some individuals to choose an economic strategy-stripping assets, including converting corporate assets to private use-that gives them an interest in postponing the establishment of the rule of law. And therefore in the succeeding period, the rule of law may again not be in place, and so again individuals may strip assets. If they do, some of them may again have an interest in postponing the establishment of the rule of law. And so a weak demand for the rule of law can persist. The contribution of the paper is to show that the view that once stripping has occurred, the strippers will say"enough"and by supporting the rule of law seek public protection of their gains, is flawed. By abstracting from the obvious problem that strippers who obtain great wealth can buy special favored treatment from the state, the model highlights two less obvious flaws in the optimistic view about the Big Bang: First, that the asset-strippers can remove the assets from exposure to further stealing, and in that case they do not care about public protection for their gains. And second, that the perceived justice of a system is important to gaining the cooperation of those involved in the process of producing the rule of law (judges, regulators, jurors, potential offenders). Accordingly, state protection of asset strippers may be infeasible, even under an ostensible rule of law. Knowing this, strippers will be less supportive of the rule of law. The model makes one further point: what is at issue is how fast the rule of law will emerge. The presumption of the Big Bang strategy was that the faster state property was turned over to private hands, the faster a true market economy, including the rule of law, would be established. The analysis shows that, even if eventually a rule of law is established, the Big Bang may put into play forces that delay the establishment of the rule of law. The tortoise once again may beat the hare! Finally, the authors analyze the impact of certain policies, such as the particular structure of privatization and monetary policy. Policies that enhance the returns to investment and wealth creation rather than assetstripping not only serve to strengthen the economy in the short run, but enhance political support for the rule of law and thus put it in a position for stronger long-term growth.Corruption&Anitcorruption Law,Environmental Economics&Policies,Economic Theory&Research,Legal Products,Labor Policies,Legal Products,Environmental Economics&Policies,Economic Theory&Research,Corruption&Anitcorruption Law,Judicial System Reform

Equilibrium fictions : a cognitive approach to societal rigidity

This paper assesses the role of ideas in economic change, combining economic and historical analysis with insights from psychology, sociology and anthropology. Belief systems shape the system of categories ("pre-confirmatory bias") and perceptions (confirmatory bias), and are themselves constrained by fundamental values. The authors illustrate the model using the historical construction of racial categories. Given the post-Reformation fundamental belief that all men had rights, colonial powers after the 15th century constructed ideologies that the colonized groups they exploited were naturally inferior, and gave these beliefs precedence over other aspects of belief systems. Historical work finds that doctrines of race came into their own in the colonies that became the United States after, not before, slavery; that out of the"scandal of empire"in India emerged a"race theory that cast Britons and Indians in a relationship of absolute difference"; and that arguments used by the settlers in Australia to justify their policies toward the Aborigines entailed in effect the expulsion of the Aborigines from the human race. Racial ideology shaped categories and perceptions in ways that the authors show can give rise to equilibrium fictions. In the framework of this paper, technology, contacts with the outside world, and changes in power and wealth matter not just directly but because they can lead to changes in ideology.Cultural Policy,Race in Society,Educational Sciences,Cultural Heritage&Preservation,Ethics&Belief Systems

Exiting a lawless state

An earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset-stripping, and the prevalence of asset-stripping led to the absence of a demand for the rule of law, highlighting a coordination failure. This paper looks more carefully at the dynamics of transition from a non-rule-of-law state. The paper identifies a commitment problem as the critical feature inhibiting the transition: the inability, under a rule of law, to forgive theft. This can lead to the perpetuation of the non-rule-of-law state, even when it might seem that the alternative is Pareto-improving.Public Sector Corruption&Anticorruption Measures,National Governance,Labor Policies,Gender and Law,Bankruptcy and Resolution of Financial Distress

Effective action for a quantum scalar field in warped spaces

We investigate the one-loop corrections at zero, as well as finite temperature, of a scalar field taking place in a braneworld motived warped background. After to reach a well defined problem, we calculate the effective action with the corresponding quantum corrections to each case.Comment: 10 pages, to appear in The European Physical Journal

The creation of the rule of law and the legitimacy of property rights : the political and economic consequences of a corrupt privatization

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 regimetoward 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.Legal Products,Economic Theory&Research,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures,Governance Indicators

Emerging patterns of species richness, diversity, population density, and distribution in the skates (Rajidae) of Alaska

Six years of bottom-trawl survey data, including over 6000 trawls covering over 200 km2 of bottom area throughout Alaska’s subarctic marine waters, were analyzed for patterns in species richness, diversity, density, and distribution of skates. The Bering Sea continental shelf and slope, Aleutian Islands, and Gulf of Alaska regions were stratified by geographic subregion and depth. Species richness and relative density of skates increased with depth to the shelf break in all regions. The Bering Sea shelf was dominated by the Alaska skate (Bathyraja parmifera), but species richness and diversity were low. On the Bering Sea slope, richness and diversity were higher in the shallow stratum, and relative density appeared higher in subregions dominated by canyons. In the Aleutian Islands and Gulf of Alaska, species richness and relative density were generally highest in the deepest depth strata. The data and distribution maps presented here are based on species-level data collected throughout the marine waters of Alaska, and this article represents the most comprehensive summary of the skate fauna of the region published to date

Towards an hybrid compactification with a scalar-tensor global cosmic string

We derive a solution of the gravitational equations which leads to a braneworld scenario in six dimensions using a global cosmic string solution in a low energy effective string theory framework. The final spacetime is composed by one warped brane with $\mathbb{R}^{(3,1)}\times S^{1}$ topology and a power law warp factor, and one noncompact extra dimension transverse to the brane. By looking at the current experimental bounds, we find a range of parameters in which, if the on-brane dimension has an acceptable size, it does not solve the hierarchy problem. In another example this problem is smoothed by the Brans-Dicke parameter.Comment: RevTex, 7 pages. New version to be published in the JCAP (2008

Brane Cosmic String Compactification in Brans-Dicke Theory

We investigate an alternative compactification of extra dimensions using local cosmic string in the Brans-Dicke gravity framework. In the context of dynamical systems it is possible to show that there exist a stable field configuration for the Einstein-Brans-Dicke equations. We explore the analogies between this particular model and the Randall-Sundrum scenario.Comment: RevTex, 5 pages, no figures. To appear in the Physical Review

Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market

In many areas of the world, a significant part of the cost of obtaining a good or service is the cost of enforcing the contracts entailed in its provision. We present models of markets with endogenous enforcement costs, motivated by studies of rural credit markets. We show that subsidies may have perverse effects under monopolistic competition, increasing prices or inducing exit. Higher prices (interest rates) result from the loss of scale economies or from negative externalities among suppliers. The models are consistent with the puzzling evidence that infusions of government-subsidized formal credit have not improved the terms offered by moneylenders

Exiting a Lawless State

An earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset-stripping and the prevalence of asset-stripping led to the absence of a demand for the rule of law, highlighting a coordination failure. This article looks more carefully at the dynamics of transition from a non-rule-of-law state. The article identifies a commitment problem as the critical feature inhibiting the transition: the inability, under a rule of law, to forgive theft. This can lead to the perpetuation of the non-rule-of-law state, even when it might seem that the alternative is Pareto-improving