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Enforcement Problems and Secondary Markets

  • Fernando A. Broner
  • Alberto Martin
  • Jaume Ventura

There is a large and growing literature that studies the effects of weak enforcement institutions on economic performance. This literature has focused almost exclusively on primary markets, in which assets are issued and traded to improve the allocation of investment and consumption. The general conclusion is that weak enforcement institutions impair the workings of these markets, giving rise to various inefficiencies. But weak enforcement institutions also create incentives to develop secondary markets, in which the assets issued in primary markets are retraded. This paper shows that trading in secondary markets counteracts the effects of weak enforcement institutions and, in the absence of further frictions, restores efficiency.

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File URL: http://www.nber.org/papers/w13559.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13559.

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Date of creation: Oct 2007
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Publication status: published as Fernando A. Broner & Alberto Martin & Jaume Ventura, 2008. "Enforcement Problems and Secondary Markets," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 683-694, 04-05.
Handle: RePEc:nbr:nberwo:13559
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  1. Fernando Broner & Jaume Ventura, 2005. "Globalization and risk sharing," Economics Working Papers 837, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2009.
  2. Fernando Broner & Jaume Ventura, 2010. "Rethinking the effects of financial liberalization," Economics Working Papers 1128, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2013.
  3. Fernando A. Broner & Alberto Martín & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," Working Papers 288, Barcelona Graduate School of Economics.
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