Transforming Post-Communist Political Economies (1998) / Chapter Skim
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1 Property Rights in Transition Economies: A Commentary on What Economists Know
1 Property Rights in Transition Economies: A Commentary on What Economists Know
Pages 35-60
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From page 35... ...
Well-defined property rights are widely viewed as a source of improved economic performance.) They occupy a central place in discus This paper draws substantially on an earlier study, Institutional Reform in Central and Eastern Europe: Altering Paths with Incentives and Information, supported and published under a grant from the International Center for Economic Growth, 1995.
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From page 36... ...
Both studied there under Adam Smith and subsequently returned to Moscow. In 1768 Desnitsky was appointed to the Chair of Roman Law and Russian Jurisprudence at Moscow University, where he was a strong advocate for Smith's ideas.
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From page 37... ...
We discuss these briefly and then consider some historical examples that demonstrate the conditional nature of our understanding. We then ask why we do not know more by examining the revealed preferences of the economics profession concerning emphasis and 3In November 1801, Mordvinov proposed to the Council of State that property rights be reformed to allow all kinds of people to purchase land.
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From page 38... ...
Improving the clarity of ownership is valuable in that it permits owners and potential owners to seek out more highly valued uses across a wider set of individuals and over a longer time horizon. For example, clarity of ownership allows the owners of assets to access capital markets by using those assets as collateral.
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From page 39... ...
Coase shows that in a setting with sufficiently low transaction costs, the initial distribution of property rights need not determine subsequent efficiency. This implies that even where individuals' property rights are not protected by the state, those groups which are able to lower transaction costs sufficiently can contract around the lack of enforcement by the state.
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From page 40... ...
Even during periods of less severe persecution, their rights were significantly restricted: on occasion they were assessed double taxes; they were prohibited from testifying in civil courts against members of the established church; they were excluded from holding local elective office; and they were forced to wear special conspicuous clothing, including, for women, hats bearing horns. Even in relatively good times, the state was not a reliable enforcer of contracts for them.
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From page 41... ...
If transaction costs are sufficiently low, even a group initially disadvantaged in the assignment and enforcement of property rights can still become highly productive. If extraordinary trust can be forged, if the voting paradox can be resolved, and if informal mechanisms of contract enforcement are sufficiently low in cost, extensive specialization and trade can still take place.
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From page 42... ...
These isolated successes, however, do not necessarily lead to overall development. Russia as a whole benefited from the economic activities of the Old Believers, but, as Mordvinov lamented, development in Russian was greatly hindered because the formal and informal rules leading to low transaction costs were not imbedded in the larger society.
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From page 43... ...
The Italian state attempted to restrict the activities of this industry, but the protection groups made various adjustments to sustain a comparative advantage in many forms of trade. The series of land reforms in nineteenth-century Italy thus had significant unintended consequences.ll The reforms that ended feudalism, confiscated church holdings, and allowed land to be bought and sold also increased the opportunity for private suppliers of protection that is, private contract enforcement to become independent and well established.
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From page 44... ...
The Mafia prospered by excluding other methods of contract enforcement and by taxing transactions. The evolution toward the Mafia type of specialized private enforcement industry is not inevitable.
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From page 45... ...
During hyperinflation, time horizons shrink dramatically, and trade may be reduced to barter. At the microeconomic level, a lack of credible rules concerning contract enforcement, property rights, or regulations raises the costs of exchange.l4 Without low-cost impersonal exchange, the gains from specialization are lost.
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From page 46... ...
After these changes were instituted, people were more willing to trade over longer time spans, private long-term investments became more attractive, and interest rates fell. The lowered rates made clear the benefits of the new institutional arrangements to all parties, thereby helping to win permanent support for the new system.l6 In many countries today, as in seventeenth-century England, private property is subject to excessive political influence and control.
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From page 47... ...
The World Bank study also examines reform efforts in these countries and the conditions under which these reforms are likely to succeed when reform appears to be desirable, feasible, and credible. A remarkable feature of this study is that it appears to be the first large-scale, international empirical study of state-owned enterprises after more than a century and a half of heated debate about the merits of state ownership and socialism.
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From page 48... ...
A1though most economists agree that institutional reform is fundamental to successful transformation, little systematic attention has been given to many of the core elements of institutions: path dependence, transaction costs, incentives, measurement and monitoring, credible commitments, corruption, and local and regional government.~9 To explore more systematically the allocation of resources within the economics profession, we investigated the frequency with which published works in economics include various terms and concepts. This method provides a proxy, albeit a rough one, for measuring the attention given to different concepts.
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From page 49... ...
the subset of these documents dealing with transition and reform in Central and Eastern Europe and the former Soviet Union, and (3) the subset of these documents whose authors recently received tenure in high-ranking American economics departments.22 The general set of all economics documents pro 21EconLit, produced by the American Economics Association, is a comprehensive indexed bibliography of world economic literature published in the English language.
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From page 50... ...
Among these 949 documents, only two fall within the transition set, and these appear to be versions of the same working paper. Overall, the market share of the new institutional economics concepts in the economics literature is in the 1 percent range.
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From page 51... ...
To what extent is this approach observed in the economics literature? To investigate this question, we grouped terms referring to (1)
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From page 52... ...
There are many reasons why the standard approach of testing theory with evidence has been difficult in the transition literature, but these numbers are not reassuring. It is also noteworthy that among the 2,564 documents in the transition set, only 22 include terms from each of the three categories referring to theory, empirical observation, and testing; none include terms from all four categories.
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From page 53... ...
Well-functioning markets depend on information that reflects the opportunity costs of the decisions made. The marketplace for reform proposals on Central and Eastern Europe and the former Soviet Union is underdeveloped along these dimensions.
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From page 54... ...
These problems do not pertain solely to academic economists. As a referee has pointed out, and consistent with our experience, local experts in transitional economies often seem obsessed with their own uniqueness and pay little attention to the body of experience acquired elsewhere.
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From page 55... ...
ANNEX 1-1 For each term listed, Annex Table 1-1 shows the number of documents in the transition set and in the general set in which it is mentioned in title or abstract. (These sets of documents are described in footnote 22.)
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From page 56... ...
Institutional Change Inequality Reject, Inconsistent Private Enterprise Black Market Monitor* Trade Off*
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From page 57... ...
5493 Self-Govern * 529 Confirm, Consistent 43,534 Enforcement 4495 Fair, Fairness 4483 Norm, -s 4315 New Institutional Economics 478 Corrupt*
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From page 58... ...
Merithew 1995 Institutional Reform in Central and Eastern Europe: Altering Paths with Incentives and Information. San Francisco: International Center for Economic Growth.
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From page 59... ...
Pp. 35-53 in The Emergence of Market Economies in Eastern Europe, C
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From page 60... ...
World Bank No date Transition: The Newsletter About Reforming Economies. Transition Economics Di vision, Policy Research Department.
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