Kyoto University Asian Economic Development Seminar (AEDS)

Speaker: Sultan Mehmood(Assitant Professor, the New Economic School)

Title: Contract Enforcement in a Stateless Economy (with Daniel L. Chen)

Language: English

Abstract: How do markets flourish in the absence of a formal State authority enforcing contracts. To study contract enforcement without the State, we focus on a large informal market: illegal gambling. We present evidence that even in the absence of legal enforcement authority, personal relationships, and violence, more than 70% of gamblers fulfill their contractual obligations in this informal economy. We provide experimental evidence that even in impersonal and informal markets, reputation plays a key role in the honoring of contractual obligations. Extensions of the payment deadline also increases contract enforcement. Overall, we provide data and causal evidence that contract enforcement is possible in impersonal markets and without formal legal enforcement. Illegal gambling thrives on the same principles of reputation and credit constraints that sustain modern legal markets.

Keywords: Contracts, Markets, Institutions

Chair and Contact: Tomohiro Machikita (CSEAS)