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Moral capital is of great importance for both the economic and non-economic well-being of a society. However, moral capital is likely to erode during transitions, especially economic ones. The aim of the work is to determine the mechanisms through which the economic and political transition contributes to the erosion of moral capital, but also which measures can affect the rebuilding of moral capital. Analyzing individual cases, especially in Serbia, we draw general conclusions about the impact of economic and political transition on the decline of moral capital in transition countries. In this paper, we argue that the processes put in motion during economic and political transitions that lead to loss of moral capital are likely to result in a new equilibrium state. This state is characterized by the migration of the bearers of moral capital both to the margins of society and out of society and is highly unlikely to be reversed without a focused intervention by the state and society. We further argue that economic theory could both offer a justification for such an intervention and inform on the most effective way to conduct it. This is because the loss of moral capital can be seen as an instance of market failure in transition, one in which parts of the transitional elite are imposing a negative externality on the rest of society. Internalizing this externality -by making the culprits responsible could make the transition more successful; it would benefit justice and prosperity not only in the current economic transition but also in the future restructuring of the national economy and society. We argue that measures to restore moral capital ought to combine monetary transfers, improvement of institutional framework, and immaterial incentives with the aim of initiating processes that could benefit the whole society. Legally required monetary transfers should repair direct damage caused by corrupt actions, but should not benefit any particular individual, while immaterial incentives should be initiated both by the state and the wider society. We found out that activities of transition elites contribute to negative externalities, such as deterioration of moral capital, which results in less social and economic well-being. Additionally, we propose measures which can contribute to the internalization of these externalities.
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