Spontaneous Market Emergence
Drawing insights from the literature on credit and labor markets and from the author`s own survey work on contractual practices among manufacturers and traders in Africa, this paper investigates the spontaneous emergence of markets in the presence of heterogeneous agents. Using a dynamic game setting, we derive precise conditions under which relational contracting spontaneously emerges and deters opportunistic breach of contract even in the absence of formal market institutions. Exclusion of cheaters from future trade is not required for exchange to begin. Markets at early stages of development are characterized by trade based on mutual trust and on the sharing of information among acquaintances. As markets develop, newcomers may be excluded from trade when screening costs are high and agents long lived. Reputational equilibria in which cheaters are permanently excluded from trade are not decentralizable unless markets are already developed and breach of contract is interpreted as a sign of impending bankruptcy. Market emergence is a path dependent process.
|Date of creation:||01 Jan 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
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.:
- Himbara, David, 1994. "The failed Africanization of commerce and industry in Kenya," World Development, Elsevier, vol. 22(3), pages 469-482, March.
- Fafchamps, Marcel & Gunning, Jan Willem & Oostendorp, Remco, 2000.
"Inventories and Risk in African Manufacturing,"
Royal Economic Society, vol. 110(466), pages 861-93, October.
- Marcel Fafchamps & Jan Willem Gunning and Remco Oostendorp, 1999. "Inventories and risk in African manufacturing," Economics Series Working Papers WPS/1999-19, University of Oxford, Department of Economics.
- Marcel Fafchamps & Jan Willem Gunning & Remco Oostendorp, 1999. "Inventories and risk in African manufacturing," CSAE Working Paper Series 1999-19, Centre for the Study of African Economies, University of Oxford.
- McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
- Fafchamps, Marcel, 1997. "Trade credit in Zimbabwean manufacturing," World Development, Elsevier, vol. 25(5), pages 795-815, May.
- McMillan, John & Woodruff, Christopher, 1998.
"Inter-Firm Relationships and Informal Credit in Vietnam,"
CEPR Discussion Papers
2036, C.E.P.R. Discussion Papers.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
- John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
- Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
- Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
- Ellison, Glenn, 1994.
"Cooperation in the Prisoner's Dilemma with Anonymous Random Matching,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(3), pages 567-88, July.
- Glen Ellison, 2010. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Levine's Working Paper Archive 631, David K. Levine.
- Lang, William W. & Nakamura, Leonard I., 1990. "The dynamics of credit markets in a model with learning," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 305-318, October.
- Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
- Marris, Peter, 1971. "African Businessmen in a Dual Economy," Journal of Industrial Economics, Wiley Blackwell, vol. 19(3), pages 231-45, July.
- Fafchamps, Marcel & Minten, Bart, 1998.
"Relationships and traders in Madagascar,"
MTID discussion papers
24, International Food Policy Research Institute (IFPRI).
- Marcel Fafchamps & Bart Minten, 2000.
"Returns to Social Network Capital among Traders,"
Development Working Papers
145, Centro Studi Luca d\'Agliano, University of Milano.
- Michi Kandori, 2010.
"Social Norms and Community Enforcement,"
Levine's Working Paper Archive
630, David K. Levine.
- Ghosh, Parikshit & Ray, Debraj, 1996.
"Cooperation in Community Interaction without Information Flows,"
Review of Economic Studies,
Wiley Blackwell, vol. 63(3), pages 491-519, July.
- Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development 64, Boston University, Institute for Economic Development.
- Kali, Raja, 1999. "Endogenous Business Networks," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 615-36, October.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Simon Johnson & John McMillan & Christopher Woodruff, 2000. "Entrepreneurs and the Ordering of Institutional Reform: Poland, Slovakia, Romania, Russia and Ukraine Compared," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 1-36, March.
- Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
- Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
- Rasmusen, Eric, 1996.
"Stigma and Self-Fulfilling Expectations of Criminality,"
Journal of Law and Economics,
University of Chicago Press, vol. 39(2), pages 519-43, October.
- Eric Rasmusen, 1995. "``Stigma and Self-Fulfilling Expectations of Criminality''," Law and Economics 9506001, EconWPA.
- Rasmusen, E., 1992. "Stigma and Self-Fulfilling Expectations of Criminality," Papers 92-019, Indiana - Center for Econometric Model Research.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:138. 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: (Monica Birds)
If references are entirely missing, you can add them using this form.