A BEJTE Topics article.

Abstract

This paper presents a model of opportunistic behaviour in decentralized economic exchange and considers the impact of inadequate institutional framework of formal contract enforcement on economic performance. It is shown that (i) when the number of cheating traders is sufficiently large, inadequate institutions result in a loss of decentralized trading contracts, (ii) an adequate institutional framework, while being necessary for the attainment of a Pareto optimal outcome, may not be sufficient if traders perceive it as inadequate; and (iii) sufficiently good formal enforcement provisions help deter contractual breach in environments with corrupt and powerful enforcers.

Submitted: January 4, 2007 · Accepted: March 23, 2007 · Published: April 5, 2007

Recommended Citation

Andrianova, Svetlana (2007) "On Corruption and Institutions in Decentralized Economies," The B.E. Journal of Theoretical Economics: Vol. 7 : Iss. 1 (Topics), Article 12.
Available at: http://www.bepress.com/bejte/vol7/iss1/art12