Advanced Search
MyIDEAS: Login to save this paper or follow this series

Development and the interaction of enforcement institutions

Contents:

Author Info

  • Dhillon, Amrita
  • Rigolini, Jamele

Abstract

The authors examine how institutions that enforce contracts between two parties-producers and consumers-interact in a competitive market with one-sided asymmetric information and productivity shocks. They compare an informal enforcement mechanism, reputation, the efficacy of which is enhanced by consumers investing in"connectedness,"with a formal mechanism, legal enforcement, the effectiveness of which can be reduced by producers by means of bribes. When legal enforcement is poor, consumers connect more with one another to improve informal enforcement. In contrast, a well-connected network of consumers reduces producers'incentives to bribe. In equilibrium, the model predicts a positive relationship between the frequency of productivity shocks, bribing, and the use of informal enforcement, providing a physical explanation of why developing countries often fail to have efficient legal systems. Firm-level estimations confirm the partial equilibrium implications of the model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2006/12/11/000016406_20061211154057/Rendered/PDF/wps4090.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4090.

as in new window
Length:
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:wbk:wbrwps:4090

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Insurance&Risk Mitigation; Markets and Market Access; Business Environment; Business in Development;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
  2. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1994. "Rotating Savings and Credit Associations, Credit Markets and Efficiency," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 701-19, October.
  3. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  4. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  5. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
  6. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 677-716, 06.
  7. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
  8. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  9. Pierpaolo Battigalli & Giovanni Maggi, 2003. "Costly Contracting in a Long-Term Relationship," Working Papers 249, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  11. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
  12. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
  13. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  14. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
  15. Avinash Dixit, 2001. "On Modes of Economic Governance," CESifo Working Paper Series 589, CESifo Group Munich.
  16. 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.
  17. Johannes H�rner, 2002. "Reputation and Competition," American Economic Review, American Economic Association, vol. 92(3), pages 644-663, June.
  18. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  19. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  20. Joel Sobel, 2006. "For Better or Forever: Formal versus Informal Enforcement," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 271-298, April.
  21. W. Bentley MacLeod, 2006. "Reputations, relationships and the enforcement of incomplete contracts," Discussion Papers 0506-23, Columbia University, Department of Economics.
  22. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  23. Dilip Mookherjee, 1999. "Contractual Constraints on Firm Performance in Developing Countries," Boston University - Institute for Economic Development 98, Boston University, Institute for Economic Development.
  24. Kali, Raja, 1999. "Endogenous Business Networks," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 615-36, October.
  25. Esfahani, Hadi Salehi, 1991. "Reputation and uncertainty Toward an explanation of quality problems in competitive LDC markets," Journal of Development Economics, Elsevier, vol. 35(1), pages 1-32, January.
  26. Kranton, Rachel E. & Swamy, Anand V., 1999. "The hazards of piecemeal reform: british civil courts and the credit market in colonial India," Journal of Development Economics, Elsevier, vol. 58(1), pages 1-24, February.
  27. William Pyle, 2005. "Contractual Disputes and the Channels for Interfirm Communication," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(2), pages 547-575, October.
  28. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, vol. 70(279), pages 385-404, 08.
  29. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Tabellini, Guido, 2007. "The Scope of Cooperation: Values and incentives," CEPR Discussion Papers 6534, C.E.P.R. Discussion Papers.
  2. Gani, Azmat & Clemes, Michael D., 2013. "Modeling the effect of the domestic business environment on services trade," Economic Modelling, Elsevier, vol. 35(C), pages 297-304.
  3. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers.
  4. Rubinchik, Anna & Samaniego, Roberto M., . "Demand For Contract Enforcement in A Barter Environment," Working Papers WP2011/15, University of Haifa, Department of Economics, revised 06 Dec 2011.
  5. Michi NISHIHARA & Takashi SHIBATA, 2013. "Preemption, leverage, and financing constraints," Discussion Papers in Economics and Business 13-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Shingo Ishiguro, 2011. "Relationships and Growth," Discussion Papers in Economics and Business 11-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  7. Shingo Ishiguro, 2011. "Relationships and Growth," Discussion Papers in Economics and Business 11-31-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised May 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4090. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.