TOWARD A THEORY OF LEGAL REFORM

This paper describes some characteristics of a dysfunctional legal sys tem, and then proposes some reforms of the legal rules that would enco urage private agents to rely on the legal system rather than mafia to structure their transactions. We argue - using both theory and the exa mple of Russia - that legal rules should accommodate rather than inter fere with the existing business practice. Moreover, in the transition stage, good legal rules should enable highly imperfect courts to verif y violations of law and tell courts what to do when such violations oc cur.