On Corruption and Institutions in Decentralized Eco

Svetlana Andrianova

No 06/12, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

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 enviroments with corrupt and powerful enforcers.

Keywords: Formal contract enforcement; perceptions; transition economies (search for similar items in EconPapers)
JEL-codes: C70 D82 K42 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-law and nep-reg
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