 Fragile markets: An experiment on judicial independenceBenito Arruñada and Marco Casari Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra 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: impersonal exchange; third-party enforcement; steps of reasoning; other-regarding preferences; judicial independence. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1031 Access Statistics for this paper More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra |
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