Relationships and Growth
AbstractIn this paper we present a dynamic general equilibrium model to investigate how different contracting modes based on formal and relational enforcements endogenously emerge and are dynamically linked with the process of economic development. Formal contracts are enforced by third party institutions (courts), while relational contracts are self-enforcing agreements without any third party involvement. The novel feature of our model is to demonstrate the co-evolution of these different enforcement modes and market equilibrium conditions, all of which are jointly determined. We then characterize the equilibrium paths of such dynamic processes and show the time structure of relational contracting (self-enforcing agreement) in the endogenous process of economic development. In particular we show that relational contracting fosters the emergence of the market-based economy in low development stages but its role declines as the economy grows and enters high development stages.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-31.
Length: 53 pages
Date of creation: Nov 2011
Date of revision:
dynamic general equilibrium; economic development; armfs length contract; relational contract;
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-CWA-2011-11-28 (Central & Western Asia)
- NEP-DGE-2011-11-28 (Dynamic General Equilibrium)
- NEP-EVO-2011-11-28 (Evolutionary Economics)
- NEP-MIC-2011-11-28 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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