Trade Implies Law: The Power of the Weak
AbstractWithout the rule of law, traders who incur trading costs can be held up by counter-parties who are stronger in anarchic bargaining. The favourable terms which the latter extract can overcrowd that side of the market, dissipating the benefits. We establish plausible necessary and sufficient conditions for a move from anarchy toward the rule of law to benefit all traders. The rule of law might be delayed, not only by the difficulties of setting up legal institutions, but by monopolistic traders that have meantime emerged to address the inefficiencies of anarchic trade. These monopolistic traders must also guarantee atomistic traders against holdup.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 475.
Length: 30 pages
Date of creation: 30 Mar 2000
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- NEP-ALL-2000-10-23 (All new papers)
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