Endogenous enforcement institutions

Abstract

Better legal institutions favor economic development, but only in States with sufficiently constrained executive power. We document this novel pattern across developing countries, and build a simple model that illustrates how power, and the institutions that constrain or complement it, may affect development. We show that there is a tradeoff between the two facets of power-enforcement and expropriation. As a ruler's power grows, his temptation not to enforce diminishes while the temptation to expropriate grows. As a consequence, private enforcement optimally evolves into State enforcement, and legal institutions, which relax the ruler's incentive constraint on enforcement, lose economic importance vis-à-vis political institutions, which limit the executive's ability to expropriate. Our results are consistent with the observed crosscountry patterns, as well as with historical evidence on the transition from the "Law Merchant" private enforcement system to the State.

Distributive Trade and Economic Growth: Eu28 Evidence for the Period 2008-2015

“…More precisely, according to this study, the most dynamic economic development rates are recorded in countries with a developed organization of sound security and individual belongings. The consequences of this and similar research (Kornai, 1992;Rodrik, 2007;Aldashev & Zanarone, 2017) only strengthen the attitudes of the so-called non-institutional economic theory, whose postulates are implemented in this third approach of (new) endogenous economic growth theories.…”