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Order with Some Law: Complementarity versus Substitution of Formal and Informal Arrangements

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  • Sergio G. Lazzarini
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    Abstract

    While some argue that incomplete incentive contracts facilitate the self-enforcement of informal dealings, other authors submit that they substitute for or "crowd out" social norms supporting informal arrangements. We use experimental evidence to test these theories by manipulating the extent to which individuals transact repeatedly and the level of contract costs. We find that, by enforcing contractible exchange dimensions, contracts facilitate the self-enforcement of noncontractible dimensions. This complementarity effect is particularly important when repetition is unlikely and thus self-enforcement is difficult. Although our data suggest the existence of reciprocity as an alternative, informal enforcement mechanism, we do not find evidence that contracts substitute for this social norm. Copyright 2004, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 20 (2004)
    Issue (Month): 2 (October)
    Pages: 261-298

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    Handle: RePEc:oup:jleorg:v:20:y:2004:i:2:p:261-298

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    Cited by:
    1. Maria Bigoni & Giancarlo Spagnolo & Paola Valbonesi, 2010. "Sticks and Carrots in Procurement," CEIS Research Paper 157, Tor Vergata University, CEIS, revised 28 May 2010.
    2. Armelle Mazé & Claude Ménard, 2010. "Private Ordering, Collective Action, and the Self-Enforcing Range of Contracts. The Case of French Livestock Industry," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00624288, HAL.
    3. Yamamura, Eiji, 2009. "Formal and informal deterrents of crime in Japan: Roles of police and social capital revisited," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 611-621, August.
    4. Hueth, Brent & Ligon, Ethan & Melkonyan, Tigran A., 2008. "Interactions between Explicit and Implicit Contracting: Evidence from California Agriculture," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6068, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Bruno Deffains & Claude Fluet, 2013. "Legal Liability when Individuals Have Moral Concerns," Journal of Law, Economics and Organization, Oxford University Press, vol. 29(4), pages 930-955, August.
    6. repec:hal:journl:halshs-00624288 is not listed on IDEAS
    7. Schieffer, Jack & Wu, Steven Y., 2010. "Naughty or nice? Punishment and the interaction of formal and informal incentives in long-term contractual relationships," MPRA Paper 20891, University Library of Munich, Germany.
    8. Bijman, W.J.J. & Hendrikse, G.W.J. & van Oijen, A.A.C.J., 2012. "Accommodating Two Worlds in One Organization: Changing Board Models in Agricultural Cooperatives," ERIM Report Series Research in Management ERS-2012-015-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    9. Bracht, Juergen & Feltovich, Nick, 2009. "Whatever you say, your reputation precedes you: Observation and cheap talk in the trust game," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1036-1044, October.
    10. López-Bayón, Susana & González-Díaz, Manuel, 2010. "Indefinite contract duration: Evidence from electronics subcontracting," International Review of Law and Economics, Elsevier, vol. 30(2), pages 145-159, June.
    11. Armelle Mazé, 2005. "Contract Law and the self-enforcing range of contracts in agriculture," Working Papers halshs-00354960, HAL.
    12. D. Vandaele & P. Gemmel, 2007. "Dealing with Business Service Transactions after the Sourcing Decision: Influence of Contract and Uncertainty," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/432, Ghent University, Faculty of Economics and Business Administration.
    13. Armelle Mazé & Claude Ménard, 2010. "Private ordering, collective action, and the self-enforcing range of contracts," European Journal of Law and Economics, Springer, vol. 29(1), pages 131-153, February.
    14. Malhotra, Deepak & Lumineau, Fabrice, 2011. "Trust and collaboration in the aftermath of conflict: the effects of contract structure," MPRA Paper 38358, University Library of Munich, Germany.
    15. Maze, Armelle, 2006. "Multilateral reputation mechanisms and contract law in agriculture : complement or substitutes," 2006 Annual meeting, July 23-26, Long Beach, CA 21285, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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