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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Online
ISSN
1935-1682
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Volume 5, Issue 1 (Nov 2006)

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Trade and Contract Enforcement

James E Anderson
  • 1Boston College,
/ Leslie Young
  • 2Chinese University of Hong Kong,
Published Online: 2006-11-13 | DOI: https://doi.org/10.1515/1538-0645.1574

Abstract

We model imperfect contract enforcement when the victims of default resort to spot trading because the act of repudiation reveals a favorable outside option. We show that enforcement imperfection is essentially distinct from the contract incompleteness analyzed in the previous literature. 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 unfavorable contracts. 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 may often be optimal.

Keywords: contract enforcement; trade; institutions

About the article

Published Online: 2006-11-13


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/1538-0645.1574. Export Citation

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