The fable of the leeches, or: The single most unrealistic positive assumption of most economists

Edward Stringham

The Review of Austrian Economics, 2017, vol. 30, issue 4, No 1, 413 pages

Abstract: Abstract Most economists assume that markets depend on government to enforce contracts and rules against default or fraud. With small transactions, however, the cost to use the legal system far exceeds the value at stake in a contract, and even with large contracts, the legal system often cannot solve problems quickly enough to be helpful for companies. This article focuses on four real stories that illustrate how market participants solve problems privately rather than through law and then concludes with a fable to help illustrate that point.

Keywords: Private governance; Role of government; Legal centralism (search for similar items in EconPapers)
JEL-codes: B53 P11 P16 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11138-017-0402-3

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