Reform of the legal, regulatory and judicial environment -- what importance for development strategy?

This paper discusses the ways in which LRJ systems affect resource allocation and entrepreneurial initiative in poor countries. Phenomena that cause the LRJ environment systems to impede economic efficiency are identified, and options for reform are examined. Attention focuses initially on three pillars of the legal system that underlie every market economy, namely, security of private property, enforcement of contracts, and assignment of liability for wrongful damage. Next, the document discusses supplemental categories of business law that facilitate the creation and funding of institutions necessary for efficient production and distribution of many goods and services. Six common means business regulation that present options for removing obstacles to efficiency are reviewed: licensing and concessions; regulation of labor, the financial market, and prices; control of restrictive business practices; and official conflicts of interest. The paper concludes by examining the functioning of the institutions that determine how the LRJ system operates in practice, namely, the machinery for settlement of disputes and enforcement of judgments, as well as institutions that affect the transparency of that operation, notably the press. (Author abstract, modified)