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Contractual Intermediaries

Author

Listed:
  • Garey Ramey

    (Dept. Economics, UCLA, San Diego)

  • Joel Watson

Abstract

This paper analyzes the role of third party intermediaries, such as courts and arbitrators, in contract enforcement. In our model, intermediaries compel contracted transfers and resolve disputes when requested to do so by the contracting agents. When the verifiability of information is limited, successful enforcement requires that dispute resolution costs be sufficiently great. Optimal enforcement systems economize on dispute resolution and information costs, and may involve establishment of specific systems tailored to particular groups. We show further that the "holdup problem" may be resolved via an appropriately designed dispute resolution system.

Suggested Citation

  • Garey Ramey & Joel Watson, 1999. "Contractual Intermediaries," Cowles Foundation Discussion Papers 1235, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1235
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2003. "Liquidity flows and fragility of business enterprises," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1215-1241, September.
    2. Koeppl, Thorsten V., 2007. "Optimal dynamic risk sharing when enforcement is a decision variable," Journal of Economic Theory, Elsevier, vol. 134(1), pages 34-60, May.
    3. Brishti Guha, 2005. "The Auditor and the Firm : A Simple Model of Corporate Cheating and Intermediation," Microeconomics Working Papers 22429, East Asian Bureau of Economic Research.
    4. Klimenko, Mikhail & Ramey, Garey & Watson, Joel, 2008. "Recurrent trade agreements and the value of external enforcement," Journal of International Economics, Elsevier, vol. 74(2), pages 475-499, March.
    5. Wouter J. Den Haan & Garey Ramey & Joel Watson, 1999. "Contract-theoretic approaches to wages and displacement," Review, Federal Reserve Bank of St. Louis, issue May, pages 55-68.
    6. Avinash Dixit, 2003. "On Modes of Economic Governance," Econometrica, Econometric Society, vol. 71(2), pages 449-481, March.
    7. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Job destruction and the experiences of displaced workers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 87-128, June.
    8. Joel Watson, 2013. "Contract and Game Theory: Basic Concepts for Settings with Finite Horizons," Games, MDPI, Open Access Journal, vol. 4(3), pages 1-40, August.
    9. Garey Ramey & Joel Watson, 1999. "Conditioning Institutions and Renegotiation," Cowles Foundation Discussion Papers 1225, Cowles Foundation for Research in Economics, Yale University.
    10. Deltas, George, 2006. "Overinvestment in partially relationship-specific assets and R&D," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 466-475, July.

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