Working Paper: NBER ID: w14045
Authors: James E. Anderson
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.
Keywords: No keywords provided
JEL Codes: F10; O17; O19; O24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in trade (F19) | improvement in contract enforcement (D86) |
| increase in trade (high elasticity of supply) (F10) | improvement in contract enforcement (D86) |
| trade expansion (inelastic supply) (F10) | deterioration in enforcement (K40) |
| new markets (D40) | improvement in enforcement in existing markets (L10) |
| new trade opportunities (F19) | degradation in enforcement in established markets (L10) |
| changes in parameters (willingness to pay, trade costs) (F16) | alteration in enforcement levels (K40) |