Cover

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Title Page, Series Page, Copyright Page

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Contents

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pp. v-vi

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Preface

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pp. vii-x

Amultidisciplinary research area, to which I have given the attention-grabbing name “Lawlessness and Economics,” has emerged within the social sciences during the last two decades. It studies the alternative institutions that support economic activity when a government is unable or unwilling to provide adequate protection of property rights and enforcement of contracts through the machinery of state law. Research in this field has accelerated in recent years, partly as the underlying conceptual framework has developed, and partly as the...

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1 Economics With and Without the Law

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pp. 1-24

Most economic activities and interactions share several properties that together create the need for an institutional infrastructure of governance. First, these activities and interactions are opportunities to create or add value. This includes creation of tangible or intangible property (such as improved land, physical and human capital, reputation, and goodwill) and exchange of goods and services. Second, the activities require input from several individuals. We have known since the birth of economics how division of labor enhances...

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2 Private Ordering in the Shadow of the Law

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pp. 25-58

Even in modern advanced economies where the state promulgates and enforces laws bearing on economic conduct, these laws rarely govern all detailed aspects of transactions and contracts. Most business transactions between, as well as within, firms are conducted using various informal arrangements, such as handshakes and oral agreements, ongoing relationships, and custom and practice. If disputes arise, the parties first attempt to resolve them by direct negotiation. The law is available if these attempts at private settlement fail, but recourse to it is usually the last step, not the first, and often...

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3 Relation-Based Contract Enforcement

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pp. 59-96

The purpose of institutions and mechanisms of economic governance is to induce individuals to take cooperative or honest actions that achieve and sustain mutually beneficial outcomes in their economic interactions, countering the temptation of each individual to take opportunistic or cheating actions that promote his interest at the expense of the aggregate good. Similar issues arise in other fields, most prominently in evolutionary biology. Dugatkin (1999, pp. 17–27) gives a fourfold classification of the approaches...

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4 Profit-Motivated Contract Enforcement

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pp. 97-124

Chapter 3 compared two modes of contract enforcement: (1) self-governance, based on community information networks and ostracization or other forms of sanctions; and (2) formal state governance, based on a framework of laws and of auditing and monitoring mechanisms. The first was limited by the matching and communication technologies; in large worlds it may fail altogether, or fail to realize the full economic benefits of comparative advantage. The second depended on the community’s ability to solve the collective-action problems...

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5 Private Protection of Property Rights

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pp. 125-148

Economic theorists have always recognized the importance of secure property rights in creating the right incentives to produce and to invest. North and Weingast (1989) emphasize its role in the rise of Western European economies. Students of less-developed countries (De Soto 2000; Rodrik 2000, pp. 6, 7) and transition economies (McMillan 2002) reinforce this lesson. They also show how insecure property rights remain in many countries. The threats to property rights come from two broad classes...

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6 Conclusion

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pp. 149-154

The study of non-state institutions to underpin economic activity is a lively research subject that spans several traditional disciplines—economics, law, politics, sociology, and anthropology. It merits recognition as a field in its own right, or perhaps as a subfield of the New Institutional Economics or Organizational Theory. I hope this book makes some useful contributions to the field and earns it better recognition. First, I bring together several strands that had previously been distinct: case studies and theoretical models...

References

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pp. 155-162

Index

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pp. 163-168

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The Gorman Lectures in Ecomonics

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pp. 169-169

Terence (W. M.) Gorman was one of the most distinguished economists of the twentiethcentury. His ideas are so ingrained in modern economics that we use them daily with almostno acknowledgement. The relationship between individual behavior and aggregate outcomes,two-stage budgeting in individual decision making, the ?characteristics? model which lies atthe heart of modern consumer economics, and a conceptual framework for ?adult equivalence...