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Spontaneous Market Emergence Author info | Abstract | Publisher info | Download info | Related research | Statistics Marcel Fafchamps
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Drawing insights from the literature on credit and labor markets and from the author`s own survey work on contractual practices among manufacturers and traders in Africa, this paper investigates the spontaneous emergence of markets in the presence of heterogeneous agents. Using a dynamic game setting, we derive precise conditions under which relational contracting spontaneously emerges and deters opportunistic breach of contract even in the absence of formal market institutions. Exclusion of cheaters from future trade is not required for exchange to begin. Markets at early stages of development are characterized by trade based on mutual trust and on the sharing of information among acquaintances. As markets develop, newcomers may be excluded from trade when screening costs are high and agents long lived. Reputational equilibria in which cheaters are permanently excluded from trade are not decentralizable unless markets are already developed and breach of contract is interpreted as a sign of impending bankruptcy. Market emergence is a path dependent process.
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
138.
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Date of creation: 2003Date of revision:
Handle: RePEc:oxf:wpaper:138Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ Email: Web page: http://www.economics.ox.ac.uk/ More information through EDIRC
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Keywords: market institutions information sharing networks social capital path dependence Other versions of this item:
Find related papers by JEL classification: O1 - Economic Development, Technological Change, and Growth - - Economic Development K0 - Law and Economics - - General P5 - Economic Systems - - Comparative Economic Systems
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Fafchamps, Marcel, 1997.
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Other versions: Garey Ramey & Joel Watson, 1999.
"Conditioning Institutions and Renegotiation ,"
University of California at San Diego, Economics Working Paper Series
99-09, Department of Economics, UC San Diego.
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Other versions: Bigsten, A. & Collier, P. & Fafchamps, M. & Dercon, S. & Gauthier, B. & Gunning, J.W. & Oduro, A. & OOstendorp, R. & Patillo, C. & Sederbom, M. & Teal, F. & Zeufack, A., 1999.
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Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity ,"
Journal of Political Economy ,
University of Chicago Press, vol. 91(3), pages 401-19, June.
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Other versions: Fafchamps, M. & Gunning, J.W. & Oostendorp, R., 1999.
"Inventories and Risk in African Manufacturing ,"
Working Papers Series
99-19, Centre for the Study of African Economies, University of Oxford.
Other versions: North, Douglass C, 1991.
"Institutions ,"
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Rasmusen, Eric, 1996.
"Stigma and Self-Fulfilling Expectations of Criminality ,"
Journal of Law & Economics ,
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Taylor, Curtis R, 2000.
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International Economic Review ,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 871-91, November.
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"Cooperation in the Prisoner's Dilemma with Anonymous Random Matching ,"
Review of Economic Studies ,
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Fafchamps, Marcel, 1996.
"The enforcement of commercial contracts in Ghana ,"
World Development ,
Elsevier, vol. 24(3), pages 427-448, March.
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Watson, Joel, 1999.
"Starting Small and Renegotiation ,"
Journal of Economic Theory ,
Elsevier, vol. 85(1), pages 52-90, March.
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Other versions: Fafchamps, Marcel & Minten, Bart, 2001.
"Property Rights in a Flea Market Economy ,"
Economic Development and Cultural Change ,
University of Chicago Press, vol. 49(2), pages 229-67, January.
Other versions:
Fafchamps, Marcel & Minten, Bart, 1999.
"Property rights in a flea market economy ,"
MTID discussion papers
27, International Food Policy Research Institute (IFPRI).
[Downloadable!] Fafchamps, M. & Minten, B., 1999.
"Property Rights in a Flea Market Economy ,"
Working Papers Series
99-25, Centre for the Study of African Economies, University of Oxford.
Fafchamps, Marcel & Minten, Bart, 2001.
" Social Capital and Agricultural Trade ,"
American Journal of Agricultural Economics ,
American Agricultural Economics Association, vol. 83(3), pages 680-85, August.
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Greif, Avner, 1994.
"Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies ,"
Journal of Political Economy ,
University of Chicago Press, vol. 102(5), pages 912-50, October.
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references Cited by : (explanations , 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.)
Marcel Fafchamps, 2004.
"Social Capital and Development ,"
Economics Series Working Papers
214, University of Oxford, Department of Economics.
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Steven N. Durlauf & Marcel Fafchamps, 2004.
"Social Capital ,"
NBER Working Papers
10485, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Steven Durlauf & Marcel Fafchamps, 2004.
"Social Capital ,"
Development and Comp Systems
0409060, EconWPA.
[Downloadable!] Durlauf, Steven N. & Fafchamps, Marcel, 2005.
"Social Capital ,"
Handbook of Economic Growth ,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 26, pages 1639-1699
Elsevier.
[Downloadable!] (restricted) Abigail Barr & Marcel Fafchamps & Trudy Owens, 2004.
"The Resources and Governance of Non-Governmental Organizations in Uganda ,"
Development and Comp Systems
0409047, EconWPA.
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Fali Huang, 2006.
"The Transition from Relational to Legal Contract Enforcement ,"
Working Papers
23-2006, Singapore Management University, School of Economics.
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Marcus Noland, 2003.
"Religion, Culture, and Economic Performance ,"
Peterson Institute Working Paper Series
WP03-8, Peterson Institute for International Economics.
[Downloadable!]
Marcel Fafchamps, 2003.
"Ethnicity and Networks in African Trade ,"
Contributions to Economic Analysis & Policy ,
Berkeley Electronic Press, vol. 2(1), pages 1227-1227.
[Downloadable!] (restricted)
Other versions: Marcel Fafchamps & Marco J. van der Leij & Sanjeev Goyal, 2006.
"Scientific Networks and Co-authorship ,"
Economics Series Working Papers
256, University of Oxford, Department of Economics.
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