Contract Enforcement and Government Incentives

Conference Paper No. F31, The 4th Annual International Conference on Transition Economics

Posted: 10 Jun 2000

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

David D. Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Yingyi Qian

Tsinghua University - School of Economics & Management; Centre for Economic Policy Research (CEPR)

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management

Abstract

In the absence of constraints on the state based on rule of law, there is a dilemma facing the state: when the state has the incentives to enforce contracts, it also has the incentives for predation. We demonstrate that information available to the state can determine the outcome in such a tradeoff. A "full information" regime permits the state to engage in unlimited predation which chokes off private incentives. A "no information" regime does not provides the state with incentives for contract enforcement resulting in opportunistic behavior from private investors. Under a "gray information" regime, the state can limit its predation and also has incentives to enforce some contracts, leading to better private incentives and limited private opportunistic behavior.

Suggested Citation

Bai, Chong-En and Li, David Daokui and Qian, Yingyi and Wang, Yijiang, Contract Enforcement and Government Incentives. Conference Paper No. F31, The 4th Annual International Conference on Transition Economics, Available at SSRN: https://ssrn.com/abstract=180289

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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University of Michigan - William Davidson Institute ( email )

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David Daokui Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

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China
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HOME PAGE: http://home.ust.hk/~davidli

Yingyi Qian

Tsinghua University - School of Economics & Management

Beijing, 100084
China

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
Industrial Relations Center
Minneapolis, MN 55455
United States
612-624-6814 (Phone)
612-624-8360 (Fax)

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