Trust in the Shadow of the Courts

G. Brennan, W. Güth, H. Kliemt

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    Abstract

    If contract enforcers must be randomly selected from the same population and thus are as opportunistic as ordinary traders could a system of adjudication nevertheless increase the degree to which contractual obligations on large anonymous markets are fulfilled? Adopting an indirect evolutionary approach with endogenous preference formation it can be shown that without superior behaviour of adjudicators an adjudication system can induce untrustworthy traders to behave as if trustworthy. However, in the presence of occasional mistakes adjudication will merely slow down but not fully eliminate the evolutionary advantage of untrustworthy types. Only if arbitrators become judges who receive a fixed income occasional mistakes will not favour untrustworthy types. But even then under non-optimal court politics and unfavourable parameter constellations in a low trust environment the introduction of courts may in fact contribute to the crowding out of the trustworthy.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherCentER, Center for Economic Research
    Number of pages34
    Volume1997-89
    Publication statusPublished - 1997

    Publication series

    NameCentER Discussion Paper
    Volume1997-89

    Keywords

    • Evolutionary game theory
    • intrinsic motivation
    • trust relationships
    • court system
    • legal litigation
    • Hobbesian problem of social order
    • crowding out

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    Brennan, G., Güth, W., & Kliemt, H. (1997). Trust in the Shadow of the Courts. (CentER Discussion Paper; Vol. 1997-89). CentER, Center for Economic Research.