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On Corruption and Institutions in Decentralized Eco


  • Svetlana Andrianova



This paper presents a model of opportunistic behaviour in decentralized economic exchange and considers the impact of inadequate institutional framework of formal contract enforcement on economic performance. It is shown that (i) when the number of cheating traders is sufficiently large, inadequate institutions result in a loss of decentralized trading contracts, (ii) an adequate institutional framework, while being necessary for the attainment of a Pareto optimal outcome, may not be sufficient if traders perceive it as inadequate; and (iii) sufficiently good formal enforcement provisions help deter contractual breach in enviroments with corrupt and powerful enforcers.

Suggested Citation

  • Svetlana Andrianova, 2006. "On Corruption and Institutions in Decentralized Eco," Discussion Papers in Economics 06/12, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:06/12

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    References listed on IDEAS

    1. David Friedman, 1999. "Why Not Hang Them All: The Virtues of Inefficient Punishment," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 259-269, December.
    2. Ali al-Nowaihi & Sanjit Dhami, 2005. "Insurance and Probability Weighting Functions," Discussion Papers in Economics 05/19, Department of Economics, University of Leicester, revised Sep 2006.
    3. Avner Bar-Ilan & Bruce Sacerdote, 2001. "The Response to Fines and Probability of Detection in a Series of Experiments," NBER Working Papers 8638, National Bureau of Economic Research, Inc.
    4. Bar-Ilan, Avner & Sacerdote, Bruce, 2004. "The Response of Criminals and Noncriminals to Fines," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 1-17, April.
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    More about this item


    Formal contract enforcement; perceptions; transition economies;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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