Demand for Law and the Security of Property Rights: The Case of Post-Soviet Russia

Abstract

Studies of property rights overwhelmingly focus on whether states expropriate or protect property, overlooking the crucial issue of whether private sector actors will use state institutions. By contrast, I argue that the “supply” of formal legal institutions often fails to ensure firms will rely on the state for property rights protection. Instead, firms frequently avoid formal legal institutions and turn to illegal strategies based on violence or corruption. Whether firms adopt legal strategies depends on: (1) firm-level practices and beliefs that impede the use of law, (2) the effectiveness of illegal strategies, and (3) coordination problems resulting from firms’ expectations about each other’s strategies. Drawing on interviews with firms, lawyers, and private security agencies, as well as an original survey of Russian enterprises, I illustrate how “demand-side” factors led to a surprising increase in Russian firms’ reliance on formal legal institutions over the past two decades. The findings suggest that comprehensive understanding of property rights and the rule of law requires not only attention to state institutions’ effectiveness, but also to private actors’ strategies.

Diversity, Institutions, and Economic Outcomes: Post-WWII Displacement in Poland

“…As a result, the reach of the state will be more limited, and informal institutions will continue to play a role in enforcing cooperation. Even when state institutions are highly functional, switching from informal to formal enforcement entails substantial coordination costs and does not pay off until a sufficiently large population has done so (Gans-Morse 2017; Greif and Kingston 2011).…”

The Role of Corporate Political Connections in Commercial Lawsuits: Evidence From Chinese Courts

“…Li, 2017). Beyond the case of China, there is also evidence suggesting that Russian businesses have strong demands for using legal institutions to protect property rights even when state institutions are ineffective or corrupt (Gans-Morse, 2017a, 2017b; Hendley, 2006). Lambert-Mogiliansky et al (2007) show that firms’ benefits from bankruptcy proceedings in Russian commercial courts are shaped by the political power of regional governors and their relationship with the federal center.…”

Why Corporate Political Connections Can Impede Investment

“…The main reason we believe that connections could be a problem for domestic investment is because strategic alliances involving connected firms and unconnected investors imply a power imbalance. Since unconnected investors lack informal ties to government agents, unconnected investors must rely on formal dispute resolution mechanisms in the event of conflict with connected firms (Gans-Morse, 2017; Marques et al, 2020; Markus, 2012). Connected firms are more likely to act opportunistically when interacting with unconnected investors since they can leverage their ties to government officials, bypass formal institutions such as courts, and escape formal penalties.…”