Are property rights enough?Re‐evaluating a big‐bang claim1

We investigate the claim made by proponents of the big‐bang strategy that the establishment of property rights in an economy in transition creates its own demand for the enforcement of laws to protect those rights. Our model contains a government engaging in activities to accomplish objectives that depend on public support for the enforcement of the rule of law and agents who interpret the level of activities of the government as indications of the government's intent to enforce the rule of law. Agents, using the level of government activities as an input to their decisions, choose whether to support the government's objectives. We establish conditions under which the level of activities chosen by the government maximizes its benefits, and simultaneously induces the constituency to support enforcement of the rule of law. These conditions provide a basis for the argument for the implementation of the big‐bang policy. When these conditions do not hold, however, we show that the level of activities that maximizes the government's benefits may have only a minor impact on support for the enforcement of the rule of law. Two characteristics play an important role in these conditions: the initial level of crime and the types of activities the government chooses to undertake. We present examples showing that the initial level of crime has the more dramatic effect on subsequent support for the rule of law.     

Investor Reaction to Salient News in Closed-End Country Funds

We use panel data on prices and net asset values to test whether dramatic country-specific news affects the response of closed-end country fund prices to asset value. In a typical week, prices underreact to changes in fundamentals; the (short-run) elasticity of price with respect to asset value is significantly less than one. In weeks with news appearing on the front page of The New York Times , prices react much more; the elasticity of price with respect to asset value is closer to one. These results are consistent with the hypothesis that news events lead some investors to react more quickly.