Demand for contract enforcement in a barter environment
AbstractDo greater potential gains from trade enhance or erode contracting institutions? In an anonymous exchange environment traders can sign a contract, hence agreeing to interact with the assigned partner, or wait till the next match. Any contract can be endorsed (for a payment) by the enforcement agency, which then observes the interaction with a positive probability known to the traders and punishes any detected infractors. Demand for contract enforcement is the highest amount a proposer of a contract is ready to pay to the agency, in a stationary subgame perfect equilibrium. It may be strictly positive, as we show, even when contracts are broken. Surprisingly, larger potential gains from exchange may dampen the demand, but not always: the demand is boosted under agencies that oversee the interactions frequently. Copyright Springer-Verlag 2013
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Volume (Year): 41 (2013)
Issue (Month): 1 (June)
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Other versions of this item:
- Rubinchik, Anna & Samaniego, Roberto M., . "Demand For Contract Enforcement in A Barter Environment," Working Papers WP2011/15, University of Haifa, Department of Economics, revised 06 Dec 2011.
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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