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On Corruption and Institutions in Decentralized Economies

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  • Andrianova Svetlana

    (University of Leicester)

Abstract

This paper presents a model of opportunistic behaviour in decentralized economic exchange and considers the impact of inadequate institutional framework of formal contract enforcement on economic performance. It is shown that (i) when the number of cheating traders is sufficiently large, inadequate institutions result in a loss of decentralized trading contracts, (ii) an adequate institutional framework, while being necessary for the attainment of a Pareto optimal outcome, may not be sufficient if traders perceive it as inadequate; and (iii) sufficiently good formal enforcement provisions help deter contractual breach in environments with corrupt and powerful enforcers.

Suggested Citation

  • Andrianova Svetlana, 2007. "On Corruption and Institutions in Decentralized Economies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-34, April.
    • Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:12
    DOI: 10.2202/1935-1704.1353
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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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