02-16.pdf (412.69 kB)
On corruption and decentralized economies
preprint
posted on 2005-08-12, 16:22 authored by Svetlana AndrianovaThis paper studies opportunistic behaviour in a model of decentralized
economic exchange and inadequate institutional framework of formal
contract enforcement. It is shown that (i) when the number of cheating
traders is sufficiently large, inadequate institutions (e.g. due to insufficient
legal provisions and/or ineffective enforcement of existing laws) result in a
loss of decentralized trading contracts which suggests yet another explanation
of the output fall puzzle of the recent transition experience; (ii) while
being necessary for the attainment of a Pareto optimal outcome, an adequate
institutional framework may not be sufficient if traders perceive it as inadequate;
and (iii) in the presence of adequate institutional framework, even
if enforcers are corrupt contractual breach is deterred when enforcers enjoy
strong bargaining power. The results suggest that institutions of formal contract
enforcement have a first order effect on the success of liberalization in
the economy with a high level of corruption.
History
School
- Business and Economics
Department
- Economics
Pages
402886 bytesPublication date
2002Notes
Economics Research Paper, no. 02-16Language
- en