Imperfect Contract Enforcement / James E. Anderson, Leslie Young.

Format:

Book

Author/Creator:

Anderson, James E.

Contributor:

National Bureau of Economic Research.

Young, Leslie.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8847.

NBER working paper series no. w8847

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We model imperfect contract enforcement when repudiators and their victims default to spot trading. The interaction between the contract and spot markets under improved enforcement can exacerbate repudiation and reduce contract execution, harming all traders. Improved contract execution benefits traders on the excess side of the spot market by attracting potential counter-parties, but harms them by impeding their exit from contracts found to be unfavorable. Multiple equilibria and multiple optima are possible, with anarchy a local optimum, perfect enforcement a local minimum and imperfect enforcement a global optimum. LDCs exhibit parameter combinations such that imperfect enforcement is optimal from their side of international markets. The model thus rationalizes the internationally varying patterns of imperfect enforceability observable in survey data.

Notes:

Print version record

March 2002.