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European Legal Studies Center


It is an old saw of the economics profession that markets require a clear assignment of initial entitlements to most resources and well-enforced rules of contract. Governments intent on fostering a market economy should thus make sure to put an effective legal system in place, one in which property rights are unambiguous, secure and freely alienable. Even if the state gets some of the initial entitlements wrong, it is often added, the Coase theorem instructs us that the parties, if free to contract, will correct this by appropriate private agreements. The experience of postcommunist countries in eastern Europe is a good reminder that economists tend to assume a can opener when one is needed. Indeed, the statement that property and contract rights must be "put in place" assumes away one of the most interesting and intricate questions concerning economic development. The creation of a system of enforceable entitlements to the diverse and complex forms of wealth characteristic of a modern society is itself a process subject to economic laws; as I shall argue here,