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Trust in the Shadow of the Courts

Author

Listed:
  • Geoffrey Brennan
  • Werner Güth
  • Hartmut Kliemt

Abstract

Even if contract enforcers are as opportunistic as ordinary traders, a system of adjudication can increase the degree to which contractual obligations on large anonymous markets are fulfilled. Only if arbitrators receive a fixed income, occasional mistakes will not favour the untrustworthy. It can be shown that the presence of the courts may further the prospects of the trustworthy in a large class of situations. But under non-optimal court policies and unfavorable parameter constellations introducing courts may crowd out trustworthiness.

Suggested Citation

  • Geoffrey Brennan & Werner Güth & Hartmut Kliemt, 2003. "Trust in the Shadow of the Courts," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(1), pages 1-16, March.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200303)159:1_16:titsot_2.0.tx_2-t
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    References listed on IDEAS

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    1. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-1053, July.
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    Citations

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    Cited by:

    1. G Th, Werner & Ockenfels, Axel, 2005. "The coevolution of morality and legal institutions: an indirect evolutionary approach," Journal of Institutional Economics, Cambridge University Press, vol. 1(02), pages 155-174, December.
    2. Geoffrey Brennan & Giuseppe Eusepi, 2013. "Buchanan, Hobbes and contractarianism: the supply of rules?," Chapters,in: Constitutional Economics and Public Institutions, chapter 2, pages 17-34 Edward Elgar Publishing.
    3. 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, February.
    4. Fali Huang, 2007. "Building Social Trust: A Human-Capital Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 552-573, December.
    5. Kirchgässner, Gebhard, 2010. "On minimal morals," European Journal of Political Economy, Elsevier, vol. 26(3), pages 330-339, September.
    6. Werner Gueth & Axel Ockenfels, 2000. "Evolutionary Norm Enforcement," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(2), pages 335-335, June.
    7. Paul G. Mahoney, 1998. "Trust and Opportunism in Close Corporations," NBER Working Papers 6819, National Bureau of Economic Research, Inc.
    8. Marian Panganiban, 2015. "To friends everything, to strangers the law? An experiment on contract enforcement and group identity," Jena Economic Research Papers 2015-015, Friedrich-Schiller-University Jena.

    More about this item

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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