The role of institutions in the contractual process
AbstractHuman beings increase their productivity by specializing their resources and exchanging their products. The organization of exchange is costly, however, because specialized activities need coordination and incentives have to be aligned. This work first describes how these exchanges are organized in an institutional environment. It then focuses on the dual effect of this environment- as with any other specialized resource, institutions may be used for expropriation purposes. They enjoy specialization advantages in safeguarding exchange but they also make possible new forms of opportunism, causing new costs of exchange. Three perverse tendencies are identified:In the legal field, there is a surplus of mandatory rules and, at the same time, a deficit in default rules. Second, courts’ activity is biased against the quasi-judicial role of the parties and the market. Third, Market enforcement is based on reputational assets that are badly exposed to opportunism.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 521.
Date of creation: Dec 2000
Date of revision: Apr 2003
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Web page: http://www.econ.upf.edu/
Contracts; institutions; enforcement; safeguards;
Find related papers by JEL classification:
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- K20 - Law and Economics - - Regulation and Business Law - - - General
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