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Trade Implies Law: The Power of the Weak

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  • James E. Anderson

    ()
    (Boston College)

  • Leslie Young

    ()
    (Chinese University of Hong Kong)

Abstract

Without 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 Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 475.

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Length: 30 pages
Date of creation: 30 Mar 2000
Date of revision:
Handle: RePEc:boc:bocoec:475

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Keywords: endogenous institutions;

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  1. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  2. Claessens, S. & Djankov, S. & Lang, L.H.P., 1999. "East Asian Corporations. Heroes or Villains?," World Bank - Discussion Papers, World Bank 409, World Bank.
  3. Greif, Avner, 1992. "Institutions and International Trade: Lessons from the Commercial Revolution," American Economic Review, American Economic Association, vol. 82(2), pages 128-33, May.
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Cited by:
  1. James E. Anderson & Leslie Young, 2002. "Imperfect Contract Enforcement," NBER Working Papers 8847, National Bureau of Economic Research, Inc.
  2. Michaël Bonnal, 2010. "Export Performance, Labor Standards and Institutions: Evidence from a Dynamic Panel Data Model," Journal of Labor Research, Springer, Springer, vol. 31(1), pages 53-66, March.

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