Economics Department

Working Papers in Economics

Art
<Previous Article Next Article>

TITLE:
Does Trade Foster Contract Enforcement?

AUTHOR(S):
James E. Anderson, Boston College

DOCUMENT TYPE: Article

ABSTRACT:
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.