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Book Chapter

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Under socialism, governments stifled markets and often left store shelves bare. One promise of transition was that new entrepreneurs would acquire the stores, create businesses, and fill the shelves. 2 However, after several years of reform, storefronts often remained empty, while flimsy metal kiosks, stocked full of goods, mushroomed on Moscow streets (Rapaczynski 1996). Why did new merchants not come in from the cold? This chapter argues that even if the initial endowment of property rights were clearly defined, corruption held in check, and the rule of law respected (e.g., Gray, Hanson, and Heller 1992; Frydman and Rapaczynski 1994; Shleifer 1994), storefronts would remain empty because of the way governments are creating property rights. Transition regimes have often failed to transfer to individuals a coherent bundle of rights that represents full ownership of storefronts or other scarce resources. Instead, those regimes have ratified the expectations of powerful socialist-era stakeholders by making them rights-holders in the new economy. Fragmented rights were made alienable in the hope that new owners would trade them to more productive users. In a typical Moscow storefront, one owner may hold the right to sell, another to receive sale revenue, and still others to lease, receive lease revenue, occupy, and determine use. No one can set up shop without collecting consent from the other owners.