Trust in the shadow of the courts

Geoffrey Brennan, W. Gueth and H. Kliemt
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H. Kliemt: Tilburg University, Center for Economic Research
Authors registered in the RePEc Author Service: Werner Güth ()

No 89, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: If contract enforcers must be randomly selected from the same population and thus are as opportunistic as ordinary traders could a system of adjudication nevertheless increase the degree to which contractual obligations on large anonymous markets are fulfilled? Adopting an indirect evolutionary approach with endogenous preference formation it can be shown that without superior behaviour of adjudicators an adjudication system can induce untrustworthy traders to behave as if trustworthy. However, in the presence of occasional mistakes adjudication will merely slow down but not fully eliminate the evolutionary advantage of untrustworthy types. Only if arbitrators become judges who receive a fixed income occasional mistakes will not favour untrustworthy types. But even then under non-optimal court politics and unfavourable parameter constellations in a low trust environment the introduction of courts may in fact contribute to the crowding out of the trustworthy.

Keywords: court; system (search for similar items in EconPapers)
JEL-codes: A11 A13 K00 C72 K12 D74 (search for similar items in EconPapers)
Date: 1997
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Journal Article: Trust in the Shadow of the Courts (2003)
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