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Does trade foster contract enforcement?

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  • James Anderson

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Abstract

Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development.
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Suggested Citation

  • James Anderson, 2009. "Does trade foster contract enforcement?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 105-130, October.
  • Handle: RePEc:spr:joecth:v:41:y:2009:i:1:p:105-130 DOI: 10.1007/s00199-008-0378-0
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, pages 691-751.
    2. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
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    5. repec:ags:afjare:141665 is not listed on IDEAS
    6. Anderson, James E. & Bandiera, Oriana, 2006. "Traders, cops and robbers," Journal of International Economics, Elsevier, pages 197-215.
    7. Schiff, Maurice & Winters, L Alan, 1998. "Regional Integration as Diplomacy," World Bank Economic Review, World Bank Group, pages 271-295.
    8. Anderson, James E. & Bandiera, Oriana, 2006. "Traders, cops and robbers," Journal of International Economics, Elsevier, pages 197-215.
    9. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    10. James E. Rauch & Vitor Trindade, 2003. "Information, International Substitutability, and Globalization," American Economic Review, American Economic Association, pages 775-791.
    11. Anderson James E & Young Leslie, 2006. "Trade and Contract Enforcement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-36.
    12. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
    13. Maurice Schiff & L. Alan Winters, 2003. "Regional Integration and Development," World Bank Publications, The World Bank, number 15172.
    14. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, pages 1-27.
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    Citations

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    Cited by:

    1. Gani, Azmat & Clemes, Michael D., 2016. "Does the strength of the legal systems matter for trade in insurance and financial services?," Research in International Business and Finance, Elsevier, pages 511-519.
    2. Ma, Yue & Qu, Baozhi & Zhang, Yifan, 2010. "Judicial quality, contract intensity and trade: Firm-level evidence from developing and transition countries," Journal of Comparative Economics, Elsevier, pages 146-159.
    3. Daniel Bernhofen & Raymond Riezman, 2009. "Introduction: ‘New directions in international trade theory’," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 1-3, October.
    4. Dixit, Avinash, 2015. "Governance, trade, and investment," Research in Economics, Elsevier, pages 166-179.
    5. Thorsten Koeppl & Cyril Monnet & Erwan Quintin, 2014. "Efficient contract enforcement," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 161-183, January.

    More about this item

    Keywords

    Imperfect contract enforcement; Endogenous institutions; Liberalization; F10; O17; K42;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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