Contractual Intermediaries

Garey Ramey and Joel Watson

No 1235, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper analyzes the role of third party intermediaries, such as courts and arbitrators, in contract enforcement. In our model, intermediaries compel contracted transfers and resolve disputes when requested to do so by the contracting agents. When the verifiability of information is limited, successful enforcement requires that dispute resolution costs be sufficiently great. Optimal enforcement systems economize on dispute resolution and information costs, and may involve establishment of specific systems tailored to particular groups. We show further that the "holdup problem" may be resolved via an appropriately designed dispute resolution system.

Pages: 38 pages
Date: 1999-09
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Citations: View citations in EconPapers (5)

Published in Journal of Law, Economics, and Organization (October 2002), 18: 362-384

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