Institutions 5 - Institutions 5 The Mystery of Legal...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Institutions 5 The Mystery of Legal Failure Legal failure o Integrating extralegal assets into a centralized property system is the key to unlocking the ability to generate capital. o Governments around the world have actually engaged in multiple efforts to expand the reach of legal property systems. o The vast majority of these efforts have failed – why? Misconceptions o 1. People are in the extralegal sector to avoid paying taxes. o 2. Assets are extralegal because they have not been properly surveyed or recorded. o 3. Legislating a procedure to register assets is enough – governments can ignore the costs of legality o . 4. Existing extralegal arrangements can be ignored. o 5. It is easy to change people’s conventions on how they can hold their assets. Taxes vs. the costs of extralegality o People who used to operate extralegal businesses happily pay taxes when afforded the opportunity to register legally. o While taxes obviously reduce the gross income of a business, so does operating extralegally. o Extralegals have to continuously bribe police, protection rackets, and other unpleasant characters. o Extralegals do not have access to economies of scale, financial instruments, logistic networks. o For Peru, De Soto found that the cost of operating extralegally was higher than cost of taxes. The cost of bribes alone consumed 15% of an extralegal business’ gross income. Information systems and surveying o Governments tend to operate under the idea that if only they create better information systems and develop better mapping and surveying tools, they will reduce extralegality. o This approach typically leads to a lot of computers and pretty maps, but does not increase legal assets. o Most Western countries developed integrated property systems before the advent of computers and modern mapping techniques. o In Japan, the integration of the property system in the 1950s was done relying on 400 year oListening to the barking dogsld maps. Why isn’t information gathering enough? o Registration databases and maps are descriptions of assets. o This only results in an inventory – a list of specific qualities of assets.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

o Property is not a quality of assets – it is the legal expression of an economically meaningful consensus about the assets. o That line is the single most important concept in this book – property is the legal expression of an economically meaningful consensus about assets.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern