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Trust in the Shadow of the Courts

Author

Listed:
  • Brennan, G.
  • Güth, W.
  • Kliemt, H.

Abstract

If contract enforcers must be randomly selected from the same population and thus are as opportunistic as ordinary traders could a system of adjudication nevertheless increase the degree to which contractual obligations on large anonymous markets are fulfilled? Adopting an indirect evolutionary approach with endogenous preference formation it can be shown that without superior behaviour of adjudicators an adjudication system can induce untrustworthy traders to behave as if trustworthy. However, in the presence of occasional mistakes adjudication will merely slow down but not fully eliminate the evolutionary advantage of untrustworthy types. Only if arbitrators become judges who receive a fixed income occasional mistakes will not favour untrustworthy types. But even then under non-optimal court politics and unfavourable parameter constellations in a low trust environment the introduction of courts may in fact contribute to the crowding out of the trustworthy.

Suggested Citation

  • Brennan, G. & Güth, W. & Kliemt, H., 1997. "Trust in the Shadow of the Courts," Discussion Paper 1997-89, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:e910a5d9-5939-4d45-b940-945df7a6de24
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    File URL: https://pure.uvt.nl/ws/portalfiles/portal/527568/89.pdf
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    References listed on IDEAS

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    1. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-1053, July.
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    Cited by:

    1. Gãœth, Werner & Ockenfels, Axel, 2005. "The coevolution of morality and legal institutions: an indirect evolutionary approach," Journal of Institutional Economics, Cambridge University Press, vol. 1(2), pages 155-174, December.
    2. Geoffrey Brennan & Giuseppe Eusepi, 2013. "Buchanan, Hobbes and contractarianism: the supply of rules?," Chapters, in: Francisco Cabrillo & Miguel A. Puchades-Navarro (ed.), Constitutional Economics and Public Institutions, chapter 2, pages 17-34, Edward Elgar Publishing.
    3. Werner Güth & Hartmut Kliemt & Bezalel Peleg, 2000. "Co‐evolution of Preferences and Information in Simple Games of Trust," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 83-110, February.
    4. Fali Huang, 2007. "Building Social Trust: A Human-Capital Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 552-573, December.
    5. Kirchgässner, Gebhard, 2010. "On minimal morals," European Journal of Political Economy, Elsevier, vol. 26(3), pages 330-339, September.
    6. Werner Gueth & Axel Ockenfels, 2000. "Evolutionary Norm Enforcement," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(2), pages 335-335, June.
    7. Paul G. Mahoney, 1998. "Trust and Opportunism in Close Corporations," NBER Working Papers 6819, National Bureau of Economic Research, Inc.
    8. Werner Gueth & Axel Ockenfels, 2000. "Evolutionary Norm Enforcement," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(2), pages 335-335, June.
    9. Marian Panganiban, 2015. "To friends everything, to strangers the law? An experiment on contract enforcement and group identity," Jena Economic Research Papers 2015-015, Friedrich-Schiller-University Jena.

    More about this item

    Keywords

    Evolutionary game theory; intrinsic motivation; trust relationships; court system; legal litigation; Hobbesian problem of social order; crowding out;

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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