Fragile markets: An experiment on judicial independence

Marco Casari and Benito Arruñada
Authors registered in the RePEc Author Service: Benito Arruñada

No 913, Working Papers from Barcelona School of Economics

Abstract: Contract enforcement does not only affect single transactions but the market as a whole. We compare alternative institutions that allocate enforcement rights to the different parties to a credit transaction: either lenders, borrowers, or judges. Despite all parties having incentives to enforce and transact, the market flourishes or disappears depending on the treatment: paying judges according to lenders' votes maximizes total surplus and equity; and a similar result appears when judges are paid according to average earnings in society. In contrast, paying judges according to borrowers' votes generates the poorest and most unequal society. These results suggest that parties playing the role of borrowers understand poorly the systemic consequences of their decisions, triggering under-enforcement, and hence wasting profitable trade opportunities.

Keywords: steps of reasoning; other-regarding preferences; impersonal exchange; third-party enforcement; judicial independence. (search for similar items in EconPapers)
JEL-codes: C91 C92 D53 D63 D72 K40 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-com, nep-cta, nep-exp and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Fragile markets: An experiment on judicial independence (2016)
Working Paper: Fragile markets: An experiment on judicial independence (2016)
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