Demand for contract enforcement in a barter environment

• Type: Article in International Scientific Journal
• Date: 2013

Authors

Rubinchik, A (Author) Other; Samaniego, RM (Author) Other

Journal

Title: SOCIAL CHOICE AND WELFARE

Vol. 41

Pages: 73-97

ISSN: 0176-1714

Indexing

ISI Web of Knowledge - 0 Citations

Scopus - 0 Citations

Other information

Authenticus ID: P-017-3S6

DOI: 10.1007/s00355-012-0670-6

Abstract (EN): Do greater potential gains from trade enhance or erode contracting institutions? In an anonymous exchange environment traders can sign a contract, hence agreeing to interact with the assigned partner, or wait till the next match. Any contract can be endorsed (for a payment) by the enforcement agency, which then observes the interaction with a positive probability known to the traders and punishes any detected infractors. Demand for contract enforcement is the highest amount a proposer of a contract is ready to pay to the agency, in a stationary subgame perfect equilibrium. It may be strictly positive, as we show, even when contracts are broken. Surprisingly, larger potential gains from exchange may dampen the demand, but not always: the demand is boosted under agencies that oversee the interactions frequently. © 2012 Springer-Verlag.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 25