Does Trade Foster Contract Enforcement?
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NBER Working Paper No. 14045
Issued in May 2008
NBER Program(s): ITI LE
Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development.
Published: James Anderson, 2009.
"Does trade foster contract enforcement?,"
Economic Theory,
Springer, vol. 41(1), pages 105-130, October.
This paper is available as PDF (349 K) or via email.
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