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Trading with Bandits

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Author Info
Peter T. Leeson

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Abstract

Is it possible to trade with bandits? When government is absent, the superior strength of some agents makes it cheaper for them to violently steal what they desire from weaker agents than to use trade to obtain what they want. Such was the case with middlemen who interacted with producers in late precolonial west central Africa. In the face of this threat, producers employed two mechanisms to make exchange with middlemen possible. On the one hand, they used credit to alter middlemen’s cost-benefit structure of engaging in plunder versus trade. On the other hand, producers demanded tribute from traveling traders as a risk premium. By transforming traveling traders’ incentive from banditry to peaceful trade and reducing producers’ costs associated with interacting with middlemen, these mechanisms enhanced both parties’ ability to capture the gains from exchange.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/511320
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Publisher Info
Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 50 (2007)
Issue (Month): ()
Pages: 303-321
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Handle: RePEc:ucp:jlawec:v:50:y:2007:p:303-321

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  1. Peter Leeson, 2008. "Coordination without command: Stretching the scope of spontaneous order," Public Choice, Springer, vol. 135(1), pages 67-78, April. [Downloadable!] (restricted)
  2. Claudia Williamson, 2009. "Informal institutions rule: institutional arrangements and economic performance," Public Choice, Springer, vol. 139(3), pages 371-387, June. [Downloadable!] (restricted)
  3. Benjamin Powell & Edward Stringham, 2009. "Public choice and the economic analysis of anarchy: a survey," Public Choice, Springer, vol. 140(3), pages 503-538, September. [Downloadable!] (restricted)
    Other versions:
  4. Peter Leeson, 2007. "Efficient anarchy," Public Choice, Springer, vol. 130(1), pages 41-53, January. [Downloadable!] (restricted)
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This page was last updated on 2009-12-12.


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