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Trust in the Shadow of the Courts

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Author Info

  • Brennan, G.
  • Güth, W.
  • Kliemt, H.

    (Tilburg University, Center for Economic Research)

Abstract

If contract enforcers must be randomly selected from the same population and thus are as opportunistic as ordinary traders could a system of adjudication nevertheless increase the degree to which contractual obligations on large anonymous markets are fulfilled? Adopting an indirect evolutionary approach with endogenous preference formation it can be shown that without superior behaviour of adjudicators an adjudication system can induce untrustworthy traders to behave as if trustworthy. However, in the presence of occasional mistakes adjudication will merely slow down but not fully eliminate the evolutionary advantage of untrustworthy types. Only if arbitrators become judges who receive a fixed income occasional mistakes will not favour untrustworthy types. But even then under non-optimal court politics and unfavourable parameter constellations in a low trust environment the introduction of courts may in fact contribute to the crowding out of the trustworthy.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-89.

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Date of creation: 1997
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Handle: RePEc:dgr:kubcen:199789

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Web page: http://center.uvt.nl

Related research

Keywords: Evolutionary game theory; intrinsic motivation; trust relationships; court system; legal litigation; Hobbesian problem of social order; crowding out;

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Cited by:
  1. Werner Güth & Axel Ockenfels, 2000. "Evolutionary Norm Enforcement," CESifo Working Paper Series 331, CESifo Group Munich.
  2. Werner Güth & Hartmut Kliemt & Bezalel Peleg, 2000. "Co-evolution of Preferences and Information in Simple Games of Trust," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 83-110, 02.
  3. Kirchgässner, Gebhard, 2010. "On minimal morals," European Journal of Political Economy, Elsevier, vol. 26(3), pages 330-339, September.
  4. Fali Huang, 2007. "Building Social Trust: A Human Capital Approach," Working Papers 08-2007, Singapore Management University, School of Economics.
  5. Werner Güth & Axel Ockenfels, . "The Coevolution of Morality and Legal Institutions - An indirect evolutionary approach -," Papers on Strategic Interaction 2002-06, Max Planck Institute of Economics, Strategic Interaction Group.
  6. Paul G. Mahoney, 1998. "Trust and Opportunism in Close Corporations," NBER Working Papers 6819, National Bureau of Economic Research, Inc.
  7. Güth, Werner, 1998. "Do banks crowd in or out business ethics? An indirect evolutionary analysis," SFB 373 Discussion Papers 1998,40, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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