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Rackets, Regulation and the Rule of Law

Author

Listed:
  • Timothy Frye

    (Department of Political Science, Ohio State University)

  • Ekaterina Zhuravskaya

    (Center for Economic and Financial Research and CEPR)

Abstract
Governments that levy predatory regulation and provide few weak legal institutions draw businesses into the unofficial economy and compel them to hire private protection organizations. Based on a survey of shopkeepers in three cities in Russia, we find that retail shops face very high levels of predatory regulation and have frequent contacts with private protection rackets. In addition, we show that higher levels of regulation are associated with weaker legal institutions and a higher probability of contact with a private protection organization. We also find that shopkeepers view private protection organizations primarily as a substitute for state-provided police protection and state-provided courts. These results emphasize the importance of public sector reform as a component of economic transition.

Suggested Citation

  • Timothy Frye & Ekaterina Zhuravskaya, 2000. "Rackets, Regulation and the Rule of Law," Working Papers w0002, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0002
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP2.pdf
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    References listed on IDEAS

    as
    1. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
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    3. Berkowitz, Daniel & DeJong, David N., 1999. "Russia's internal border," Regional Science and Urban Economics, Elsevier, vol. 29(5), pages 633-649, September.
    4. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
    5. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330, National Bureau of Economic Research, Inc.
    6. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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