On Corruption and Institutions in Decentralised Economies

Svetlana Andrianova

No 7, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper studies opportunistic behaviour in a model of decentralised economic exchange and inadequate institutional framework of formal contract enforcement. It is shown that (i) when the number of cheating traders is sufficiently large, inadequate institutions result in a loss of decentralised trading contracts which suggests yet another explanation of the output fall puzzle of the recent transition experience; (ii) while being necessary for the attainment of a Pareto optimal outcome, an adequate institutional framework may not be sufficient if traders perceive it as inadequate; and (iii) in the presence of adequate institutional framework, even if enforcers are corrupt contractual breach is deterred when enforcers enjoy strong bargaining power.

Date: 2002-08-29
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Journal Article: On Corruption and Institutions in Decentralized Economies (2007)
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