Trade Implies Law: The Power of the Weak

James Anderson () and Leslie Young ()
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Leslie Young: Chinese University of Hong Kong

No 475, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Without the rule of law, traders who incur trading costs can be held up by counter-parties who are stronger in anarchic bargaining. The favourable terms which the latter extract can overcrowd that side of the market, dissipating the benefits. We establish plausible necessary and sufficient conditions for a move from anarchy toward the rule of law to benefit all traders. The rule of law might be delayed, not only by the difficulties of setting up legal institutions, but by monopolistic traders that have meantime emerged to address the inefficiencies of anarchic trade. These monopolistic traders must also guarantee atomistic traders against holdup.

Keywords: endogenous; institutions (search for similar items in EconPapers)
JEL-codes: F1 K0 (search for similar items in EconPapers)
Date: 2000-03-30
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Working Paper: Trade Implies Law: The Power of the Weak (2000)
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