Imperfect Contract Enforcement
We model imperfect contract enforcement when repudiators and their victims default to spot trading. The interaction between the contract and spot markets under improved enforcement can exacerbate repudiation and reduce contract execution, harming all traders. Improved contract execution benefits traders on the excess side of the spot market by attracting potential counter-parties, but harms them by impeding their exit from contracts found to be unfavorable. Multiple equilibria and multiple optima are possible, with anarchy a local optimum, perfect enforcement a local minimum and imperfect enforcement a global optimum. LDCs exhibit parameter combinations such that imperfect enforcement is optimal from their side of international markets. The model thus rationalizes the internationally varying patterns of imperfect enforceability observable in survey data.
|Date of creation:||Mar 2002|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daron Acemoglu & Robert Shimer, 1998.
"Holdups and Efficiency with Search Frictions,"
98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
- McLaren, John, 1999.
"Supplier relations and the market context: A theory of handshakes,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 121-138, June.
- McLaren, J, 1996. "Supplier Relations and the Market Context : A Theory of Handshakes," Papers 766, Yale - Economic Growth Center.
- James E. Anderson & Leslie Young, 2000.
"Trade Implies Law: The Power of the Weak,"
NBER Working Papers
7702, National Bureau of Economic Research, Inc.
- James E. Anderson & Douglas Marcouiller, 1999. "Trade, Insecurity, and Home Bias: An Empirical Investigation," NBER Working Papers 7000, National Bureau of Economic Research, Inc.
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
252, David K. Levine.
- James E. Rauch & Vitor Trindade, 1999.
"Ethnic Chinese Networks in International Trade,"
NBER Working Papers
7189, National Bureau of Economic Research, Inc.
- Andrew Bernard & Joachim Wagner, 2001.
"Export entry and exit by German firms,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 105123-1051, March.
- Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, vol. 85(3), pages 630-646, June.
- Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
- Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8847. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.