Does Trade Foster Contract Enforcement?
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.
Presented to the GEP Conference on 'New Directions in International Trade Theory', 8th and 9th June, 2007. An earlier version of this paper under another title was presented to the American Economic Association meetings, January 2004.
The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
James Anderson, 2009. "Does trade foster contract enforcement?," Economic Theory, Springer, vol. 41(1), pages 105-130, October. citation courtesy of