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Lawlessness and Economics: Alternative Modes of Governance

by Avinash K. Dixit Princeton University Press
Pub Date:
Pbk 176 pages
AU$79.00 NZ$81.74
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A densely mathematical modeling approach to economic structures in developing countries. Using case studies from anthropology, sociology, political science and economic history, Dixit constructs models of how loosely organized societies enforce (or don’t) property rights and contracts through traditional long term relationships, arbitration, and social networks rather than through Western style institutions of courts, regulations and other central government structures. On an abstract level these models give managers of multinational companies ways to determine investment options and strategies in the developing world.

Preface vii

1. Economics With and Without the Law 1

1.1 The Need for Economic Governance 1

1.2 Economics Taking the Law for Granted 2

1.3 "Lawlessness and Economics "in Context 5

1.4 Law and Economics 9

1.5 Economics in the Shadow of the Law 10

1.6 Other Institutions of Economic Governance 12

1.7 Some Basic Analytical Apparatus 14

1.8 Approach of the Book 21

2. Private Ordering in the Shadow of the Law 25

2.1 Issues and Empirical Research 25

2.2 Bargaining When the Law is a Backstop 29

2.3 Relational and Formal Contracts 32

2.4 Arbitration and Information 40

2.5 Assessment and Prospects 48

2.6 Mathematical Appendix 50

3. Relation-Based Contract Enforcement 59

3.1 Issues and Empirical Research 59

3.2 Relation-Based and Rule-Based Governance 65

3.3 Limits of Relation-Based Governance 67

3.4 Related Theoretical Models 76

3.5 Assessment and Prospects 78

3.6 Mathematical Appendix 86

4. Profit-Motivated Contract Enforcement 97

4.1 Issues and Empirical Research 97

4.2 The Structure of the Model 101

4.3 Information Intermediaries 103

4.4 Enforcement Intermediaries 107

4.5 Assessment and Prospects 110

4.6 Mathematical Appendix 111

5. Private Protection of Property Rights 125

5.1 Issues and Empirical Research 125

5.2 Production and Protection under Anarchy 131

5.3 For-Profit Private Protection 133

5.4 A Predatory State and Its Citizens 138

5.5 Assessment and Prospects 143

5.6 Mathematical Appendix 144

6. Conclusion 149

6.1 Implications for Institutions and Policies 149

6.2 Implications for Future Research 153

References 155

Index 163

Avinash Dixit, a superb economist at the very peak of his profession, is one of the best-qualified economists in the world to write this book. With exceptional clarity he develops an elegant model of the scope of informal governance, one that will be indispensable for economists working in this area and for some political scientists as well. James E. Rauch, University of California, San Diego A major contribution to the field. Avinash Dixit provides an accessible and well-written overview of a sort not previously available in book form, integrating theoretical and empirical findings and developing new aspects of the issue. Avner Greif, Stanford University This extremely well written book presents a lucid and comprehensive survey of a new field in economics, namely the study of exchange, contracts, and property rights enforcement in the absence of a benevolent state. Besides providing a clear picture of the existing literature, it raises interesting questions in a coherent framework--pointing to exciting new avenues of research. Oriana Bandiera, London School of Economics broad field that is by its very nature multidisciplinary, Lawlessness and Economics is very straightforward and comprehensive in its survey of this emerging and complex phenomenon. . . . Perhaps the most compelling attribute of this endeavor is Dixit's tenacious ability to place each section and his various models into a clear and precise context with the already vast literature. Wesley T. Milner Law and Politics Book Review Concise yet comprehensive, Professor Dixit's work may well become an essential handbook for this rapidly developing field of study. Harvard Law Review Policy-oriented or not, scholars hoping to make a contribution in the area of governance in less developed countries would do well to begin with this brilliant book. es E. Rauch,' Journal of Economic Literature
Avinash K. Dixit is John J. F. Sherrerd '52 University Professor of Economics at Princeton University. He is the author or coauthor of nine books, including 'Investment under Uncertainty' (Princeton), 'Thinking Strategically' (Norton), 'Games of Strategy' (Norton), and 'The Making of Economic Policy' (MIT).