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Development and the interaction of enforcement institutions
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Dhillon, Amrita and Rigolini, Jamele (2011) Development and the interaction of enforcement institutions. Journal of Public Economics, Volume 95 (Numbers 1-2). pp. 79-87. doi:10.1016/j.jpubeco.2010.09.013 ISSN 0047-2727.
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Official URL: http://dx.doi.org/10.1016/j.jpubeco.2010.09.013
Abstract
We examine how formal and informal contract enforcing institutions interact in a competitive market with asymmetric information where consumers do not observe quality before purchase. Firm level incentives for producing high quality can be achieved with an informal enforcement mechanism, reputation, the efficacy of which is enhanced by consumers investing in "connectedness:" or with a formal mechanism, legal enforcement, the effectiveness of which can be reduced by means of bribes. We show that formal and informal enforcement mechanisms do not necessarily substitute each other: while high levels of judicial efficiency decrease consumers' incentives to connect, higher consumers' connectedness leads to higher levels of judicial efficiency. We then look at how the equilibrium institutional mix evolves with the level of development. In doing so we show the presence of a new, physical, channel that can affect institutions-i.e. the frequency of bad productivity shocks that, in less developed settings, can impact on firms' incentives to cheat. (C) 2010 Elsevier B.V. All rights reserved.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HF Commerce | ||||
| Divisions: | Faculty of Social Sciences > Economics | ||||
| Library of Congress Subject Headings (LCSH): | Contracts, Group decision making, Related party transactions, Microeconomics, Commercial law | ||||
| Series Name: | Warwick economic research papers | ||||
| Journal or Publication Title: | Journal of Public Economics | ||||
| Publisher: | Elsevier | ||||
| Place of Publication: | Coventry | ||||
| ISSN: | 0047-2727 | ||||
| Official Date: | February 2011 | ||||
| Dates: |
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| Volume: | Volume 95 | ||||
| Number: | Numbers 1-2 | ||||
| Page Range: | pp. 79-87 | ||||
| DOI: | 10.1016/j.jpubeco.2010.09.013 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| Version or Related Resource: | Working paper: Dhillon, A. and Rigolini, J. (2006). Development and the interaction of enforcement institutions. [Coventry] : University of Warwick, Economics Department. (Warwick economic research papers, no.748). http://wrap.warwick.ac.uk/id/eprint/1447 | ||||
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Development and the interaction of enforcement institutions. (deposited 11 Sep 2009 13:53)
- Development and the interaction of enforcement institutions. (deposited 14 Feb 2012 15:31) [Currently Displayed]
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