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Discussion Paper Details

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Title: Law Enforcement and Transition

Author(s): G�rard Roland and Thierry Verdier

Publication Date: July 2000

Keyword(s): Accession, Coordination Problems, Dual Track and Law Enforcement

Programme Area(s): Transition Economics

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.

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Bibliographic Reference

Roland, G and Verdier, T. 2000. 'Law Enforcement and Transition'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2501